If you’ve got debt, you can take assurance that you’re not alone. This doesn’t necessarily mean it’s a good thing or excusable, but the truth is, there are situations in life where falling into debt is often unavoidable. These include your car loan, mortgage, and perhaps even an educational loan you had to take up. Fortunately, whatever the reason behind the loan, there’s always a way out. It takes good financial habits and proper debt management to make this possible.
Debt management is crucial not just for your current financial health but even more so for your future. If you have too many debts to pay monthly, you might fall behind all other financial goals. If that is the case, may need to hire an insolvency practitioner like Hudson Weir before you plan building your retirement account, children’s trust funds, emergency funds, or even vacationing.
Managing your debt for better and faster repayment can often feel challenging. That’s precisely why making a plan to manage your payments helps. Take a look at these tips to discover some of the best pieces of advice for debt management.
- Look Into Debt Consolidation
Talk to your bank manager or financial advisor about your debt, and you might be offered a solution known as ‘debt consolidation.’ What is debt consolidation and why should you consider it? It refers to combining two or more debts into a single, larger debt. This step is often offered to consumers with high-interest debt.
Consolidating your debt has several advantages, including the following:
- It streamlines finances. It’s easier to keep track of payables when you don’t have to think of multiple debts, number of payments, or interest rates. Likewise, the chances of missing out on payment deadlines are reduced when you have fewer due dates to keep track of.
- It may help you pay off your debt faster. Because it allows you to put all the other small ones into one big debt, the likelihood of paying off your debt faster significantly reduces. This is because of lower interest rates and shorter periods like 12- or 24-month loans. Keep in mind, however, that the monthly payments may be higher given that the repayment period is now faster.
- It can improve your credit score. Banks and other credit institutions give out credit scores, which are essential, especially when you need to apply for different types of loans in the future (e.g., small business loans, car loans, or housing loans). If you consolidate your debt, you’ll likely see an improvement in your credit score within the coming months. This is a direct effect of paying off your debt faster through the higher monthly payments but a shorter timeframe for you to complete the payment.
The three points above are only some of the benefits of debt consolidation. But just because it seems like an attractive option financially, it doesn’t automatically follow that this is the best solution. The most prudent move is to check with your financial advisor to be sure there’s no better way for good debt management than through debt consolidation.
- Always Pay On Time
Did you know that prompt payment makes up more than a third of your credit score? If you’ve been used to missing payments in the past, this time around, make it a point to pay on or before the deadline all the time. You’ll see how debt management will make a difference when interest no longer piles up significantly due to late payments.
- Develop A Budget To Track Your Expenses
Tracking your expenses is another way to help you stay on top of debt management. It allows you to check which areas of your monthly expenses you could be overspending. Perhaps there’s a way to reduce costs in some areas to make room in your budget to account for higher loan or debt payments.
The simple equation to remember is this: the higher the monthly payments, the shorter the time for repaying your debts. This may mean a tighter budget within the next few months, but if the exchange is faster for paying off your loans, that’s a good enough deal.
Budgeting ensures you never miss any debt payment because the ‘money was tight’ for a particular month. With a budget, you have precise limits as to how much you can afford to spend at any given time, such that every debt to pay for is always accounted for.
- Pay Higher Than The Minimum
In connection with the third piece of advice above, with a budget, you may be better able to pay higher than the minimum. This is one of the best and simplest ways to speed up paying off your debts, making the situation more favorable in the long run.
Paying higher than the minimum allows you to cover more than the required monthly principal and interest payments. Likewise, the shorter time for paying off the loan significantly reduces interest payments, making the overall debt easier on your budget.
Final Thoughts
How you tackle your debts significantly affects your financial health in the long run. While it’s not uncommon to have some form of debt, it doesn’t follow that you should accept that debt will always be a part of life.
Depending on how well you manage your debts, you can get out of them. Brush away those hopeless feelings with effective and efficient debt management solutions.
