Managing Your Debts the Proper Way

Almost everyone nowadays lives with some amount of debt. Between mortgages, car loans, and credit card bills, to name a few, we’re increasingly relying on debt for everyday purchases and major life projects. Now, regardless of how much you owe, know that debt management is imperative for maintaining a healthy, livable personal situation.

To help you stay on top of your finances, we’ve compiled some useful steps you can follow to manage your expenses more wisely and alleviate heavy debt burdens over time.

Inventory your debts

One of the first things you should do to achieve better financial stability is to make a complete list of your current debts. Include everything from total debt amount (with fees and interests) and creditors to due dates and monthly payments. This will allow you to see the big picture and be aware of how much you owe, and to whom. Also, make sure to consult this list and update it regularly.

Elaborate a monthly budget

Creating a detailed budget is a helpful step to get a better sense of what you earn, spend, and what you have to pay back at the end of each month. Start by examining your sources of income, whether in the form of salaries or dividends. Then, compare this with your typical spending habits, which can range from essential purchases or expenses (rent, groceries, utility bills), to extras such as leisure activities. This should allow you to identify if and how you could allocate more money to debt repayments.

Pay your dues on time

This certainly goes without saying, but accumulating late payments is perhaps the greatest handicap to managing your debts the proper way. It can quickly pile up and deteriorate your credit score, which may prevent you from contracting new loans in the future. Late payers also tend to pay higher interest rates, due to the risk factor associated. To remedy this, have a calendaring system to help keep track of your bills on a month-to-month basis. Also, never wait to settle a payment, even if it’s overdue.

Set your priorities

Particularly for those who hold multiple debts from different organisms, it’s always useful to prioritize certain debts over others. For instance, it’s best to settle credit card bills at the earliest, since these are notoriously more costly due to higher interest charges. This will avoid having to spend even more on penalties and additional fees, which can make your situation spiral out of control.

Meet minimum payments

While making the minimum payment each month won’t magically solve all your problems at once, it will, however, prevent any further financial strain and troubles with your creditors. If you’re somehow unable to honor a portion of your debts, know that multiple solutions will help keep you out of the red zone. Getting informed about your options is bound to limit any damages to your financial stability.

Put away an emergency fund

Speaking of damages, accidents happen when we least expect them. Now, how would you settle your hospital bills after an injury, or replace your water heater in the middle of winter if you already have debt repayments to worry about? Be proactive and start putting a little money aside every month for emergencies. Aim for at least $1,000 in initial back-up funds and keep saving as much as you can to prepare yourself against unexpected life hazards.

Look for better deals

Sometimes, we’ve been dealing with our bank or financial institution for so long that we forget there are more economical alternatives out there. To that end, the internet now offers comprehensive guides to assist you in selecting the best and more suitable loan provider. Always make sure to read your contract clauses and the fine prints; that way, you’re guaranteed to find a more advantageous deal.

Seek out the help you need

Last but not least, if you’ve been struggling with financial hardships due to excessive debt and money mismanagement, build up the courage to reach out to your creditors and inform them of your current situation. They will most guide you towards debt-relief options, including debt consolidation (grouping all your debts into one single loan), debt settlement, or even declaring bankruptcy. At this stage, it’s crucial to weigh your options with the utmost consideration.

All things considered, managing your debts wisely takes some strategic planning, perseverance, and effort. Because debt is virtually inescapable in our modern society, always take the necessary precautions to keep your situation under control (paying on time, avoiding too many loans). Regardless of the nature or size of your debts, we recommend that you keep reading about what to do and how to behave, for a stress-free financial future.