Debt is part and parcel of life and is usually necessary for a number of reasons. Nevertheless, debt can easily get out of control if one doesn’t take some control over it. It is important to have an idea of what you need to do in order to prevent your debts from getting out of control. Here are 13 key financial management tips to assist you to remain afloat when in debt.
1. Be Honest About the Situation
Things could get worse if you decide to ignore your debts. It is prudent to be realistic and speak openly about your financial situation to your family. Begin by creating a budget and look for areas where expenditures can be cut. Use cash for all your expenditures until you can pay off your debt. Finally, look for luxuries which can be abandoned until you pay off your debts.
2. Create a Plan for Paying off the Debt
If you have a debt that has been slowly accumulating over time, it is important to come up with a realistic solution for your situation and not quick fixes which can make the situation worse for you. There are instances when the rate of interest will begin to increase and eventually your income will reduce upon retirement. When one or more of these situations occur, you’ll find yourself experiencing so many difficulties if you relied on credit to cater to your financial needs.
Dealing with your debt situation early enough will leave you with a lot of options to consider. One of the best ways to go about solving this problem is to create a realistic plan. Part of this plan should be tracking your spending and identifying areas you will need to cut back. When you do that, you will be in a position to allocate what you finances to paying down what you owe.
3. Find a Second Job
Consider getting a second job or taking up more shifts at work so you can pay down the debt aggressively. This approach often doesn’t work for every individual, but if you believe it can work for you, then, by all means, go for it. By taking a second job and working on extra shifts, you could be out of debt sooner than you know it. Once your debts have been paid off, you can decide to scale back down
4. Stop Impulse Buying
Debt management involves utilizing techniques that will enable you to divert most of your funds toward the payment of your debt. For that to happen, you need to resist the urge to run down the drive-through for a cup of coffee. When you don’t indulge in impulse buying, you will be in a position to save a lot of money which you can use to pay down your loan.
5. Consider a Consolidation Loan
Consolidating your loan is much easier and convenient as opposed to handling different debts. Loan consolidation makes it easier for you to serve a loan as a result of the convenience you get when you deal with one lender. This approach to debt management is much easier and allows you to easily budget for repayments. Instead of having to deal with various repayments, you’ll only be required to make a single payment each month. The key to benefiting from this approach and making it an effective tool is to ensure you have a spending plan with you. When you do that, you’ll be in a position to keep your spending in check as you set aside money every month for cases of emergencies or other unplanned expenses.
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6. Pay off Your Most Expensive Debts
One of the most effective strategies for managing your debt and preventing it from spiraling out of control is to pay off the most expensive debts first. Look for that loan that charges you the most interest and divert your attention towards ensuring that it is paid off first. After you have succeeded in doing that, consider going for the next expensive debt. Continue using this technique and sooner rather than later, you will realize that you are left with a few debts that can be repaid without leaving a dent in your pocket.
7. Snowball Method
If you are looking to pay more than the minimum monthly requirement for a loan, then the snowball technique can be your best bet for speeding up the loan repayment process. To achieve this, you need to make a list of all your debts, beginning from the smallest to the biggest. Once you have ascertained your list, you can start serving your smallest loans while still making the minimum payment for the bigger loans. Once one small loan has been cleared, you can focus on the next smaller loan and clear it completely while still making the minimum payment on the larger ones. With this approach, you will realize that the small balances will be cleared in no time and more money will be freed up to cater to the larger debts.
8. Consider Owning a Single Car
If you own two or more cars, you can consider getting rid of the car so you can be left with one. By so doing, you will literally save yourself a lot of money in a year. On average, an automobile owner spends more than $9,000 a year to a motor vehicle. When this man is used in paying down debt, it will create a huge difference for your financial situation. Nevertheless, before you can plunge into the idea of selling your second car, you can try another technique and see if it works for you. Try parking one car for a while. See if car-pooling, walking, cycling, or taking a taxi to work will work for you. When you decide to sell the second car, even the amount you spend on rental car or odd taxi trip will not be close to the money you would spend on your second car. If there is a chance that transit can be effective, selling your second is quite cheaper as opposed to operating it.
9. Charge the Affordable Items Only
If you do not have the cash, do not charge items based on your future income because these may fail to materialize. When you do that, you’ll be paying excessive interest rates which could easily wipe out your savings. Avoid using all your credit cards and commit yourself to live a life without credit until your financial situation normalizes.
10. Cut Corners Where Possible
There are different avenues you can take to save money on utilities such as gas, electricity, or water. To achieve this, you can use energy-saving practices to assist you in saving money as you take care of the environment. Additionally, you can become a savvy shopper and cut down spending so you can divert the funds towards the settlement of your debts. Search for deals and offers at the grocery shop and see whether you can save on specific items. As little as this may seem, it can go a long way when it comes to settling your debts.
11. Get Medical Insurance
If possible, make sure you get medical insurance as part of your debt management plan. Medical emergencies are usually unavoidable, so living with a medical cover is always an invitation to financial ruin. Not having a medical cover will end up increasing your debt because you will be forced to look for credit during times of emergency. Although emergency rooms may not send you back for lack of insurance, they will still need you to cater to your bills later, and this only adds to the debt you already have.
12. Refinance Your Mortgage
If you are a homeowner, you could have sufficient equity to consolidate your debt into the mortgage. If you lack sufficient equity in your property, additional mortgage insurance costs could be quite expensive. Consider all your options and seek the advice of professionals but the expert you seek advice from should not be your lender.
Similar to the debt consolidation loan, consolidating debts into a mortgage creates an avenue for you to come up with a budget for allocating money to savings. When you don’t do that, you will be tempted to borrow more during emergencies. Using your property as an ATM repeatedly can increase your debts upon retirement.
13. Speak to a Non-profit Credit Counsellor
If you are struggling to repay your debt, begin by talking to a credit counselor about the situation. Find out the kinds of programs available to assist you to handle your financial situation. A reputable counselor will explain all the options available to you and help you to choose an approach that is ideal for your situation. Talking to a non-profit counselor allows for confidentiality and the best part is that you don’t have to pay for consultations.
If you are finding it difficult getting out of debt, make sure you seek professional assistance. When you have the solutions at your fingertips, you will feel better knowing that your problems are under control.