If you are reading this, then chances are you might have spent more than of all your money at one point in life. Maybe it was an emergency or inability to control your impulses that got you into this financial situation. Whatever the case, if you are in debt, the only option you have got is to eliminate it.
There is nothing wrong with being in debt. To most people, it acts as a life lesson that shapes their financial behaviour for the rest of their lives. Are you interested in getting out of debt once and for all? Here are debt management guidelines that will help you take charge of your finances.
1. Note Down All Your Debts
The first guideline is to identify and list down all the debts you have. This step is super simple and relatively fast. Grab a piece of paper or open a spreadsheet document. List down all your debts as well as their interest rates. Note them down exactly as they appear on your records. Make a tally of the total debt so that you know what you are up against. Go through the list and let it sink in.
2. Set Repayment Goals
Being goal-oriented can open up a lot of opportunities in your life. Once you have established your total debt, the next step is to come up with repayment goals. The end goal here is to clear off your debt, but you can set monthly objectives. For instance, you can say that by the end of this month, I will have cleared 10% of my debt. As you set goals, be realistic. Calculate how much you make in a month and how much you can pay off.
3. Start Paying Off Debts with High-Interest Rates
There is one mistake most people make without knowing it. That is, paying debts from the smallest to the highest. This isn’t logical because you are not considering the interest rates. Arrange the order of debt repayment from high-interest rates to the lowest. The debt balance shouldn’t be your biggest concern. The interest rates should be your top priority. The moment you start following this guideline, you will notice a significant reduction in rates you pay back in debt.
4. For Every Cleared Debt, Use The Money to Clear The Next One
If you have set a certain amount of cash for repaying loans every month, then it should stay constant till all your debts are cleared. And, for every cleared debt, the money should be thrown into the next debt in line. This can help you eliminate your debts faster.
5. Trade-in Expensive Items
At times, our lifestyles are the reasons why we land ourselves into debt. Do you own two cars or a luxurious one that you can go without? Why don’t you trade it in? You can opt for a less expensive car that is more economical and use the extra money to pay off debts. And, we are not just referring to vehicles only. All valuable items that you can trade-in, kindly do so to get more funds to pay debts.
With these 5 guidelines, you can effectively manage your debt. Paying off debts isn’t as hard as most people think. Provided you know how to manage it, paying it back is a walk in the park.