There are things we need, and then there are things we want. And for both of these scenarios, we may not have enough capital in possession.
This is where debts come to the rescue. So, naturally, debts are intertwined with our lives in more ways than we may admit.
Debts can pile up pretty fast if we ignore our spending. But ultimately, it always comes back to haunt us, obstructing any kind of progress.
But there are ways to get out of this quicksand if you put your best foot forward. And the savings you make along the way is a sweet bonus.
Managing debt is as significant as making investments or building finances, if not more. If the amount is small, managing it is pretty easy. But the needs and desires are growing as we’re getting more modern, so we need to keep in mind not to create left, right, and center debts.
But even if you do, you must concoct an organized system to handle the burden. Here are 5 tips that can set you up to manage your debts more easily:
1. Make and follow a budget
You need to have a budget to know that your expenditures aren’t crossing the limits of your income. It may be boring, but there’s no system more useful for knowing the reality of your financial condition and planning your future investments and purchases accordingly.
Today, there is helpful software like PocketGuard and Mint to help you make budgets. But you can be just as efficient with pen and paper.
Note down your income from all the sources you have available. Then list all your fixed expenses and the recurring ones like utility bills, premiums for insurance, payments of credit card/s, rent, mortgage, and even groceries. Also, add the non-essential spending like going out to films or dining at restaurants.
After all, if your spending exceeds what you’re making every month, you need to tighten up your budget as you don’t have any margin for error.
Find ways you can cut back your expenses. Small things can add up to be a big respite at the end of the month, such as carpooling your daily rides, making exact lists for groceries, reducing streaming subscriptions, switching to a more affordable cell phone plan, etc.
2. Awareness about various debts
When you start managing debts, you need to be aware of different sorts of debts with varying systems and consequences. This knowledge is crucial because a certain debt can have more serious implications than others.
Every debt needs specific management to keep your entire debt portfolio in check. So, list all your current debts, all the creditors, the total debt amount you owe, the date of maturity, and the ideal monthly payment you need to deliver.
Check this list at regular intervals, like when you’re paying bills. Update this list as needed, as the debt amount changes every month.
3. Liquidity and emergency fund
When we face any financial problem that needs to be addressed immediately, the most common route is to use our liquid funds.
But why liquid?
It’s because liquid assets like cash or bank savings are the fastest and most convenient transactions we can make. That’s why if you use your liquid funds, make sure to fill them up immediately. Otherwise, you won’t have that comfort next time your back hits the wall.
The unpredictability of life means you need to invest your money in any possible emergency. So save adequately liquid assets and other stable schemes to make an emergency fund. It will help you make lemonade when life hands you some lemons.
4. Consolidating debts
If you have any debt with a high-interest rate in your portfolio, the best way to speed up the repayment process is to take advantage of debt consolidation. Debt consolidation simply refers to a personal loan you take from any trustworthy lender and use that loan to pay for your other debts.
This way, you’ll have one loan to think about, with one fixed interest rate and a single monthly payment. It gives you clarity and makes the planning far simpler. You can also take other kinds of professional assistance like Credit Mediation debt negotiation to manage your debts better.
Additionally, if you have a good credit score or someone in the family who’ll co-sign, you can get a consolidation loan with a lower interest rate than before. This way, you’ll repay the loan much quicker and even save some money along the way.
5. Tracking progress
You can’t erase all your debts overnight. It takes planning and patience.
So, don’t get demotivated if you can’t see the changes right from the start. Instead, keep your focus, and track your progress regularly.
Give it some time, and you’ll see the reduction. Then, consider a visual chart or spreadsheet to know your accomplishments and find happiness.
CONCLUSION
Debts can severely affect all your future planning and dreams. So, start managing it before it is too late to recover your finances.
