Debt is part of life. Even the richest person or the richest country incur debt. According to a survey last 2021, two in three Americans are in debt. (source: https://www.statista.com/topics/1203/personal-debt/#dossierKeyfigures). There’s always a point in our lives when we owe someone or a financial institution due to major or emergency expenses.
Not all debts are bad. Debt becomes your enemy when it’s not managed properly. The key is finding the right balance. Here’s some of the tips for debt management:
Make a list
In order for you to monitor and track your debts, you need to see the whole picture. List down all your debts including the remaining balance, interests rates and their due dates. By doing this you will be able to analyze and strategize on your next move. Also, always refer back to this list from time to time and make some updates.
Sort it out
Rank your debts according to highest interest rates as these are the debts you need to prioritize. From here you can draw out your budget plan and allocate your payments based on your prioritization.
Make Payments
If you can make advance payments, do it. Don’t wait until the due date as this will have additional late fees that will be charged to you. You can also opt to set up automatic payments to your debts. Aim to always pay the full amount instead of minimum payments especially to those with higher interests rates.
Debt consolidation
You can also consolidate your small debts into single payment by acquiring short-term loan options for bad credit. Some financial institutions offer this with lower interest rates versus the ones you owed.
Build your Emergency Fund
Set aside from your monthly budget, for your emergency fund. Little by little build this fund so that this will cover unexpected emergency expenses so that you will not use your savings or acquire additional debt.
Reduce unnecessary spending
It is important that you analyze where your money goes. Ask yourself if it is a need or a want. If you reduce or cut unnecessary spending on your monthly budget, this in return can be reallocated to your debt payment or savings or emergency fund.
Don’t take on additional debt
Work on paying off your current debt before adding new debt unless necessary like the debt consolidation. This is also aligned with reducing unnecessary spending that I have mentioned above.
Increase your cash flow
Raising funds in order to pay your debt is a straightforward approach. Take on side hustles like taking on additional work or providing service. You can also sell your unused belongings online especially if it’s still in better condition.
If you’re in a situation right now, that you think you are just too far behind, it might be time to take drastic action. Managing your debt is a serious business. It requires focus and firm decision to stay on your course. Constantly remind yourself on your end goal and that is to pay all of your debt. Take time to be informed with financial literacy as well this will help you achieve not only managing your debts but will also help you improve your financial situation.
