How to manage debt of any size
Debt has become a part of life in our society now. Debt can help us to get an education, a home, a car, or enable us to have a business. There are good debts and bad debts.
Good debt is the one that is used to purchase something that is a necessary part of your life and has long term value while bad debt is the one that is used to purchase unnecessary things in your life.
Most people have some sort of debt in their life. Hence everyone with even little debt has to manage their debt to make sure that it doesn’t get out of control.
When debt is managed well, it enables us to improve our lives by getting things accomplished but when debt is not managed well, it can become a stumbling block in achieving our targets so it is imperative to know how to manage debt regardless of its size. If you find yourself falling further into debt than you’d like, don’t panic but also don’t sit back and be passive waiting for the worse to happen.
Take action and manage what you owe before it becomes unmanageable. There are many strategies that one can use to help pay off debts and this week I will share few tips on how to manage your debt.
Know who and how much you owe
The first step which is very crucial in managing your debt is to make a list of all your debts including the name of the debtor, due date, amount of the debt, and repayment schedule of the debt. Having all debts listed will allow you to see the bigger picture which makes you aware of your debt situation and gives you the opportunity to develop a game plan on how to tackle them effectively. To be effective, you need to be relentless on checking your debt periodically especially as you pay it down.
So don’t just create your debt list and forget about it, update your list every few months or even monthly if you can as the amount of your debt changes.
Decide which debt to pay first
Use your debt list that you have created to prioritize and rank them in line with the plan of paying them off. One of the smartest strategies of getting out of debt is to make minimum payments on all your debts except the one that is charging you higher interest rate; the debt that is charging you higher interest rate should be the one that you pay off first because it is costing you the most money hence you should make more than minimum payments every month.
Once your first, most expensive debt is paid off, take all of the money that you were paying on that first debt and focus it on the next most expensive debt. You should continue this method of paying off your expensive debt until you are left with your least expensive debt to pay last. This strategy, sometimes referred to as the snowball, will get you out of debt quickly, and you will feel encouraged as you see your progress.
Pay your debt payments on time every month
You can’t pay your debt if you are not making your monthly repayments on time. Late payments on your debt makes it harder to pay it off since you will have to pay a late fee and interest charges for every payment that you are missing. This will cause your debt balance to continue to increase and makes your monthly payments increase as well hence making it harder for you to keep up the payments.
To avoid this, you need to use a calendaring system on your smartphone or computer to set up alerts to remind you a few days before your payment date is due.
In addition, if for whatever reason you miss a payment, don’t wait until the next payment due date to send your payment, do it as soon as you can.
This way you avoid paying higher interest charges as the debtor is charging you finance charges every single day that you are late.
Debt has become part of our life but too much debt can be detrimental to your financial goals and your life in general. Regardless of your debt size, the tips that I shared in this article will help you manage them effectively and take control over your debt.
