There are several different types of debt, and you’ve likely taken a loan at some stage in your life, whether it’s credit card debt, car loans, fast personal loans, student debt, or a mortgage.
Australians are taking on more debt; according to a study, the amount of money owed by Australians in relation to the amount of money earned has nearly tripled over the past three decades, with the total household debt currently sitting at about $245,000.
Debts may be helpful, but only if you manage them properly and are prepared for unforeseen incidents that can leave you exposed. Here are ten practical tips for managing your debt.
Track Your Debts
When you begin your debt management process, you should first learn about the various forms of debt that you have. This is important because some types of debt will have significant consequences on the balance sheet. Not all loans are treated equally, and a successful debt management plan entails determining the entire debt portfolio.
Begin by making a list of the various forms of unpaid debts; the creditors to which you owe the money, the overall amount owed; monthly payments; and the maturity date. You should remember to update this list when the debt amount changes each month.
Pay your Bills on Time
Debt management and time management go hand in hand, so settling your bills on time will save you money on additional interest rates and late fees. Consider putting up payment reminders or payment by direct debit on a fortnightly or monthly basis.
Try to Settle the Full Amount Owed Instead of the Minimum Amount Owed
While it may be tempting to only settle the minimum sum owed, bear in mind that you may still accumulate interest on the remaining balance, which means you will end up paying more money. Meanwhile, if you can afford to settle the entire amount, you will usually not be charged any interest.
Consider If You Can Make Additional Installments
Making extra payments on top of the monthly payments is an effective debt management strategy. Making extra installments will help you pay off your debt quicker, and as a result, you’ll usually pay less interest. Based on how much you owe, you might save thousands of dollars.
Consolidate Your Loans into a Single Loan
Consolidating your loans into one loan with a lower interest rate could be an alternative that will enable you to save money if you have several debts. Consolidating loans into a single loan also facilitates debt management since you’ll only have to make a single payment rather than making several.
Have an Emergency Fund
When it comes to managing debt, it’s always smart to prepare for the unforeseen. Your lender may raise interest rates or alter repayment terms, or you may undergo changes in your health or job that stop you from making repayments or working.
Look for A Great Deal by Shopping Around
High interest rates and additional costs may have a significant impact on how much you repay on top of the borrowed amount. If you have a credit card or a loan, you could save money simply by shopping around and seeing if another lender will give you cheaper interest rates and charges or more favorable repayment terms.
Create a Budget
Creating a budget is an effective debt control method for ultimately paying off the debt. The method, on the other hand, necessitates extensive preparation and patience. The first step is to begin keeping track of your monthly revenue and expenditures. Once you’ve defined this, you should cut any unnecessary monthly expenses. The saved money will be used to repay your debts.
Pay Most Important Bills First
You should evaluate your debt obligations and decide which payments should be paid first. Credit card balances should be paid off first, and they normally have higher interest rates than most debts. Priority should always be granted to credit cards with higher interest rates.
If you’re having trouble keeping up with your payments, try contacting your lender as soon as possible to let them know you’re having financial difficulties. Most providers will have options for hardship agreements, and there could be individuals inside their organization who may evaluate your circumstances and collaborate with you to find an alternative payment package that may help you through challenging periods.
By: Raymond James
About the Author:
Ray is a sought-after thought leader and an expert in financial and money management. He has been published and featured in over 50 leading sites and aims to contribute articles to help novice financial planners. One of his goals is to impart his knowledge in finance to educate and help ordinary people create and achieve their financial goals.