Many people are piling up more debt each day. Research shows that the money most citizens owe is higher than the money they earn, and it keeps increasing as time passes. And this may continue unless you adopt good debt management habits. With that said, here are some ways you can manage your debt.
- Plan a debt repayment strategy
If you’re serious about paying off your debts, you will have to strategize. In your strategy, you must make the following decisions concerning the order in which to pay the debts and the debts that need to be cleared urgently. You can decide that the debt with the highest interest rate should be paid first, and you’ll be better off when you pay off high-interest loans. You may also want to clear smaller debts first, starting with the smallest and follow with the next smallest until you’re done paying. This method is popularly called the snowball method, and experts suggest that it’s a better approach in settling debt as borrowers are urged on to continue paying. In both scenarios, cash has to be set aside to pay off debt.
- Don’t close credit card accounts
After paying off old credit card debts, you may want to close those accounts to avoid falling back into debt. But when you close these accounts, the amount of available credit may be lowered, which will hurt your credit score. Therefore, leaving the cards open will be your best option. Use them responsibly and pay off your balance every month. Or keep them open and make a purchase that you pay for in full every month. By doing this, the cards are kept active while you build credit.
- Balance debt repayment with savings
It is not proper to use everything you make in paying off debt. You should know that there are other things you need to set aside some money for. Making financial decisions, like saving for retirement and emergencies, should be prioritized. Not having an emergency fund will force you to put expenses that are not expected on a credit card. If the card was on your list of debts, then you will be discouraged even more, and you may stop trying to settle your debts. As mentioned, you can pay debts with very high-interest rates and then save money for other things. Contribute a sufficient amount of money to a 401(k), get an employer match, and save enough for an emergency fund after making some debt payments. Balancing debt and savings is your choice. But neglecting other financial goals when trying to pay off debt is a bad idea.
- Plan to stay out of debt
When debts are paid off, you should make a plan for it to stay that way so that you don’t go back to owing. You can start living on a budget while saving enough for emergencies to be able to cover at least six months of expenses. You will be able to live without borrowing money. And in case of any unfortunate incident like an accident or losing a job, you will not have to borrow to cover costs.
- Consolidate your debts
When you have a lot of debts, fees, and interest charges are also high. That is why you should consolidate your debts in one loan to give you lower interest rates. It will help you save money and make it easier to manage since only one payment will be required instead of many. Remember that debt consolidation will only work if you make your payments on time, and you may pay more in interest and fees if you do not do this.
- Get a debt management plan
Debt management companies work on your behalf to decrease interest rates and monthly payments on the debt with creditors’ help. An agreement is reached on an affordable payment schedule that allows three to five years to clear the debt. A debt management plan is one of the packages that come with debt consolidation and these plans are designed to aid in regaining control over finances while reducing debts. You can take control of your debt this way and bring down the number of payments you make every month, saving you money and fees. Monthly deposits are made with a credit counseling organization by those who sign up, and it is then used to pay the debts according to a payment schedule arranged by the creditors and counselors. Monthly payment depends on what the customer can afford, and you are made aware before you agree. DTSS, for instance, offers debt management services that can get you out of debt quickly and easily. At DTSS debt management services, you get expert advice on debt management solutions.
Finally, you don’t have to wait until your debts overwhelm you. The earlier you start planning on getting out of debt, the better for you, and these tips can be very helpful when you apply them.
