5 Tips For Managing Debt
July 16, 2021
What are some tips for managing your debt?
- Make a Comprehensive Account
- Work Out a Budget
- Prioritize Your Payments
- Create a Monthly Payment Calendar
- Build Your Backup Plans
It’s not uncommon to have some debt, and for many of us in the workforce, dealing with our debts is our daily reality. While not all of them are bad, no one can deny that handling any debt is a big responsibility. Anyone and everyone with even a little bit of unpaid financial obligation needs to know how to manage it, and figuring out how to do so or where to even start can be confusing. Luckily, whether you’re here looking for a way to reduce or even eliminate it, we have some tips for managing your debt.
Make a Comprehensive Account
The best way to start managing your debt is to create a comprehensive account of your income, expenses, and debts. List out all your outstanding debts, including their interest rates and minimum payments. Having them listed out will make it easier to determine which financial dues are the heaviest on your wallet, and may need immediate attention.
Once that’s done, you should determine where your cash is coming from and where it’s currently going. Take an honest look at what you’re spending each month versus what you’re earning. Ask yourself which expenses can be cut back or eliminated. You don’t need to eliminate all expenses, just the ones that you can live without until your debts are paid off. Part of managing your debt is limiting additional future debt that you take on each month.
Work Out a Budget
Next, you should crunch the numbers and find out where there’s room for financial movement to help with your debt payments. How much are you willing and able to pay every month? How much do the minimum payments for all your debts amount to?
Once you have a clear picture of how much needs to be paid every month and how much extra cash you have to work with, you can determine your budget for debt reduction. Hopefully, your current income is able to cover the costs, but if not, most financial institutes offer consultations and can help you find solutions for this.
Prioritize Your Payments
Remember that comprehensive account we talked about? Opening an account will definitely help you prioritize your payments. With this account, you can easily rank your debts in what order you want to tackle them.
There are two popular strategies for paying off debts. The first is to focus on the smallest balances first while making minimum payments on bigger debts. Once the first account is paid off, you move onto the next one with the lowest balance. This can be motivating for some as they watch the smaller accounts disappear.
The second strategy is to focus on the bigger accounts with higher interest rates while making payments to smaller accounts. This helps when you want to pay less over interest rates.
The second strategy may help you save more money over the long run, while the first will show faster progress and momentum! It’s up to you which one you prefer, but make sure to stick with your plan.
Create a Monthly Payment Calendar
Time management goes hand-in-hand with debt management. It is important to remember to make your payments on time to avoid additional problems like late fees and added interest fees.
Setting up alerts or automatic payment systems can help you stay on top of timely payments. It’s easy to create a calendaring system on your phone or computer. Simply enter a reminder for yourself several days before the payments are due so you have enough time to prepare the correct amount.
However, If you ever end up missing a payment, don’t wait for the next payment date! Instead, send your payments as soon as you notice that you missed the due date.
Build Your Backup Plans
Finally, you should prepare your backup plans for your current and future debts. Always expect the unexpected and create your financial contingency plans. Even a small emergency savings fund can come a long way when it comes to managing unexpected debt.
A backup plan can also be knowing what additional options you have, in case managing your debts is too difficult for you to do alone. If in need of additional help, know when and how to approach financial consultants in order to learn about other options for debt relief.
Managing our monthly finances can be tricky even without debt. If you’re someone who’s facing the problem of managing their outstanding accounts, finding the right tips for managing debt can go a long way in tackling the problem. Remember to do your research so you can take action now and prepare yourself for future payments and possible debts. Always stay sharp and pay attention to your financial situation to avoid additional costs in the future.