Managing finances in an era stricken with burgeoning inflation and unemployment rate is no easy feat. Let’s face it: at least once in our lives, we have all been in a bit of a pickle when it comes to money. An unexpected healthcare emergency or student loan etc., forced us to opt for taking loans in search of a quick solution. Seemingly innocuous at first, debt repayments can become a huge problem if not managed responsibly and diligently in time. They not only hinder your buying power but also strip away the hours and focus you can dedicate to other, more enjoyable activities of life. The following ways help guide you in tackling this beast of a problem.
Without further ado, let us get straight to the topic.
1. Choose A Repayment Plan That Works For You
The most dreaded part of the process is paying back. Choosing the right repayment method can be the most crucial part of how fast and unscathed you can come out of a cumbersome debt list. Here are some popular options to explore:
Tired of wracking your brain over monthly payments to your creditor or creditors? Debt Consolidation is a loan that allows you to repay ALL your creditors in one go. Yes, you read that right. It allows you to be accountable and in debt to a single creditor in exchange. The amount of debt remains the same as before but now, say goodbye to multiple payments and creditors. For instance, if you live in New Zealand, you can easily get instant approval debt consolidation loans in NZ through various debt consolidation companies operating in the country. Consequently, debt consolidation companies are at your disposal all across the globe, making things simpler and easier than ever before. You can choose the company which best suits your interest. Let your mind be at ease, and instead of embroiling all over the place, you can focus on repaying just one loan.
The Snowball Method
It requires you to pay off your debts, starting with the one that has the lowest principal amount while making a minimum allowance for the rest. The lowest debt on your list is easier and more doable than the others that’ll take you a while to overcome. It makes you feel good about your repayments and shortens your debt list gradually. Now you have fewer creditors to worry about.
The Avalanche Method
In this method, you start paying off the debt with the highest interest rate. Once you’re done with that, move on to the other debts.
2. List & Prioritize
An important step in managing your debt is to consider exactly how much you owe and when you have to pay it, your list of creditors, and the burden it poses on your pocket—meaning a credit report. It may seem boring and trivial initially, but the organization is key to ensuring all your dominos, er, debts fall flat. A Debt-to-Income Ratio (DTI), calculated by dividing your monthly balance by your monthly income and multiplied by 100, gives you the percentage of your income that is getting drained by a certain debt. It helps you prioritize your repayments and keep you financially secure in the long run. Think of it as assessing the damage proactively and, therefore, striking when the iron is hot.
3. Small Habits, Big Difference
Say No To Credit
As we are done with the credit report, now we have to opt-out of some habits that you may not realize are worsening your debt repayment plans. Recognizing them and switching to healthier alternatives will do wonders for your bank balance. A common example is Credit Cards, which can be convenient to use and carry during a shopping spree. But let’s not forget it’s only adding fuel to the fire in your efforts to minimize the debt. Instead, learn to keep cash or debit cards, which will help you track your expenditure and spend wisely.
Budget & Save
A penny saved is a penny earned. And drafting a budget is the best way to ensure that. Once you know all unnecessary expenditures you can cut down on, the saved money can go into an emergency fund. This fund will help keep you afloat in difficult times and prevent late debt payments when you’re low on cash. Keep tabs on every amount of income flowing into your house or going out of the house, simply put, maintain a record of your expenditure and finances. Avoid late fees on subscriptions and save wherever you can, whether transport/fuel costs, takeaway food, or costly vacation trips.
Separate Your Needs & Wants
The designer suit you saw on display in a shop yesterday or the expensive new cafe that opened shouldn’t be the top destination of your paycheck. They can wait; your debts won’t. Therefore, it is integral to draw a line between what you need- basic utilities like food, electricity, rent, etc. – and what you want-stuff you can hold off on only to enjoy later when you’re in a better financial position.
Don’t Procrastinate On Payments
Tempting as it may sound, procrastination is the root cause of many downfalls. Delaying your payments with the thought of paying them cumulatively a few months later might temporarily keep that stress but will only make you receive the short end of the stick later on. If you can’t make the full lump sum payment, at least make the minimum one so that you’re always on track and in the good books of your creditors.
Debt becomes huge trouble when it is not managed properly and professionally. You can manage debt and avoid getting into a confrontation with your lenders or creditors by opting for debt consolidation solutions or going for the avalanche or snowball method. In addition, you can adopt habits that can save you from debts, or if you have taken a loan, they will help you pay it back. Follow the tips mentioned in the article, and you will be able to deal with all your debts and loans with ease.