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Whatever amount of money you owe, managing your debt effectively is important. Even if you just owe a little, always make payments on time to keep your debt under control. Additional interest and/or penalty charges can add up quickly if you get behind on repayments.

Debt can be a growing problem if not managed properly. Fortunately, there are some simple steps you can take to avoid troubles with debt.

Avoid over-borrowing

Borrowing too much can lead to financial strain, mental stress and even bankruptcy. Always be careful to avoid taking on too much debt and avoid multiple sources of credit.

Pay special attention when it comes to your mortgage, which is usually the biggest investment you'll make. Avoid the temptation of taking out a mortgage with payments larger than you can comfortably meet. With a more affordable mortgage, it will be easier to make monthly mortgage payments without putting your budget under strain, and in some cases you may even be able to make extra payments to pay off the mortgage more quickly.

Risks of borrowing too much

Borrowing too much can leave you struggling financially as you plunge deeper into debt. Be careful about borrowing too much because:

  • It draws money from other important needs. If you borrow money, you have to pay interest. Money that goes towards interest payments can't be used for other purposes, such as paying down your mortgage or meeting other obligations.
  • Your credit score can suffer if you can't pay your bills. Falling behind on your payments means it will be increasingly difficult to borrow more money for future needs. Find out more about your credit score and how it affects your borrowing.
  • It can lead to higher interest payments. Lenders may charge higher interest rates on subsequent loan applications if you are already carrying a large amount of debt.

Use loans wisely

Maintaining your financial health is like keeping in good physical shape - both require careful planning, personal discipline and good habits.

  • Work out a budget that accounts for future loan repayments and expenses. If interest rates rise, your loan repayments may rise with them - so be sure to leave some room in your budget to allow for changing rates. A budget will give you a clear picture of where your money is going, and how to manage your loan repayments most effectively.
  • Don't borrow more than you can afford to repay. As a rule, keep your loan payments on mortgages, credit cards and any other debts to a level you can comfortably repay.

Stay on track with your credit commitments

Use credit wisely to take control of your finances and stay on track with your commitments.

  • Make it a priority to pay your bills on time every month. If you can avoid it, never miss a payment - it may affect your credit score.
  • Carry credit card balances responsibly. Although you can avoid interest charges if you pay off your credit card bill every month, there may be times when you have to leave a balance. If this happens, paying off your balance as quickly as possible can help keep interest payments to a minimum.

Learn more about guide to responsible borrowing and check out tips to repay debt.