In an era defined by easy access to credit, debt has become a necessary evil for many individuals and households worldwide.
Debt is accessed in the form of student loans, credit cards, mortgages, asset finance, salary advances, personal loans, and short-term credit lines, many of which can be accessed by a simple tap on an app on our phones.
Debt as a tool can build or destroy, depending on how it’s used and managed. It is all good when debt is used to make investments, pursue opportunities, and achieve financial goals in ways that sustainably pays it back.
Unfortunately, there are many people who for various reasons strain to make debt repayments leading to financial stress.
Here are some tips and strategies for proper debt management;
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Proper Budgeting
We sometimes find ourselves taking debt because of our failure to prudently allocate our disposable income to essential expenses. Not having a budget may lead one to exhaust income on stuff that is nonessential only to be forced into debt to cover more important expenses.
To avoid unnecessary debt, start by creating a comprehensive budget that outlines your income, expenses, and existing debt obligations. Keep track of your debt repayment progress by regularly reviewing your balances.
Proper budgeting also enhances one’s savings which can help you escape excessive accumulation of debt.
Prioritize High-Interest Debt
It is important to analyze your existing debts and group them according to the interest rates being charged on the outstanding balances.
Focus on paying off high-interest debt first, as it can quickly accumulate and become a significant financial burden.
When you pay off high-interest debt first, it saves you money on interest payments in the long run.
Avoid Taking on New Debt
While still paying off the already existing debts, resist the temptation to take on new debt. When in dire need of additional income, you may want to sell something that you own or forego certain expenditures to avoid adding more to your debt portfolio.
Adding more debts increases the financial stress and may cumulatively increase to a level that you are unable to pay off leading to unfavorable credit ratings or visits by auctioneers.
Build an Emergency Fund
An emergency fund provides a financial safety net and prevents you from relying on credit cards or loans to cover both expected and unexpected expenses.
You can create an emergency fund by channeling a percentage of your income into a money market fund or some other scheme that cannot be accessed instantaneously.
When building an emergency fund, aim to save enough to cover three to six months’ worth of living expenses.
Consult Financial Advisors
Sometimes you might not know how well to manage your debt, or even which debt to take and the ones to avoid.
If you’re overwhelmed by debt and struggling to make progress on your own, consider seeking help from a professional who can help you develop a practical plan.
Pay more than the prescribed debt installments
By paying more than the minimum, you can accelerate your debt repayment and reduce the total interest paid over time.
Consider Debt Consolidation
Debt consolidation strategically involves combining multiple debts into a single loan.
A well-structured debt consolidation plan should simplify debt repayment, lower interest rates, reduce overall monthly payments, and help pay off debt in a more sustainable manner.
Negotiate with Creditors
If you’re struggling to make payments, consider reaching out to your creditors to negotiate lower interest rates, reduced installment plans, longer repayment periods, or grace periods.
Creditors too are looking at building sustainable businesses and some may be willing to work with you to find mutually beneficial solutions.
By implementing a blend of these debt management tips and adopting healthy financial habits, you can take control of your finances for a more stress-free life.
