If you’re looking for practical tips on how to manage any debt you may have better, you are already on the right path. The key here is taking the necessary steps toward getting rid of the debt. As you move forward with the plan, it’s important to remember that not all debt is considered bad.
For instance, if you have a mortgage, it could let you build wealth as the home appreciates in value. However, you don’t want to accrue too much debt. This is especially true for any debt that is not generating wealth. For example, high-interest loans or credit cards can be a major hindrance to the goal of becoming financially free.
To manage your debt more effectively, consider the tips outlined below:
- Take account of all your accounts
One of the key things you want to do is to record all of your accounts. Determine which debts you have before you start making a debt management plan. You should include the interest rates when analyzing all the debt you have. This will give you a better insight into which debt is causing you trouble. High-interest debts are the ones you should focus on paying off first.
- Keep an eye on your credit report
You should always monitor your credit report. Be sure to look at your credit report at least annually. This will help you get an idea of what your report looks like and whether there is any debt that might not be included in your projections. In some cases, you may forget some of the accounts you have.
Ensure that you check whether there are accounts that you don’t recognize or ones you had no idea you had. This will let you report any discrepancies if there are unknown accounts included in your report.
- Check for possible consolidation
If there are a lot of outstanding debts with high interest, it might be a great time to consolidate them into a single loan with a lower interest rate. This can help you save a lot of money. If you do have access to personal loans with lower interest rates, this might help. You could leverage such loans to help pay the higher-interest credit card balances. This can lower the amount of interest you have to pay.
It’s worth noting that before you do any form of consolidating, you should make sure that you are not negatively affecting your qualification for the various federal loan forgiveness programs that could help your situation. This is something you might get yourself eliminated from eligibility for when you do consolidate.
- Spend less and try to minimize your fixed expenses
When looking to eliminate debt and get from underneath it, you should look at your expenses carefully. Spend some time looking at your spending and give yourself an honest assessment. Find out how much you spend monthly. Figure out if there are areas that you could cut. There are likely some monthly expenses you could do well without. When it comes to eliminating debt, you want to reduce the amount of debt you stack on top of it.
- Determine how much you owe
You also want to think about how much you owe. When you consolidate your debt, it’s time to look at how much you will be required to pay monthly. Look at the minimum payment amount and determine the total payment you will be responsible for every month. Now try to place this into your budget spreadsheet or app. If the number is greater than you can manage in your respective budget, consider contacting the lenders to see if you could get more favorable repayment terms.
- Find out how much extra you could budget
Once you’ve calculated a good baseline of what you can comfortably pay every month, it’s now time to start figuring out how much you could add to it. You want to do this because it will enhance your ability to reduce the principal amount faster. The more money you put towards repaying your debt, the faster you can get rid of it. You should cut expenses such that you can put more towards paying off the debt.
- Develop a solid debt-reduction strategy
You should figure out how you can attack your debt head-on. Try figuring out what are your best options for your unique situation. One of the most popular strategies is attacking the debts with higher interest rates first. Another approach would be paying off the lower balances first. Both strategies can be effective when done correctly.
The first strategy will help you save more money in the long run. On the other hand, the second option will let you wipe off more balances across the board, which can help increase your motivation to keep going. No matter the approach you use, you are taking the right steps toward eliminating your debt.
If you want to know more then check out this post on the advantages & disadvantages of a Debt Management Plan
