4 Ways of Managing Your Debt

Debt can be enjoyable for a while (hello, last-minute trip to Hawaii!), but the aftereffects of debt will linger long after the margaritas have left your system. You are left with a long-term debt responsibility after your splurge is finished, and due to compound interest, this obligation could get even bigger.

Debt is the pied piper that demands you forgo present and future wants and needs to pay off previous debt. Let’s face it. If this debt lowers your credit score or results in a high debt-to-income ratio, it will stop you from reaching your financial goals. Plus, it will make it more difficult to borrow more money from various lenders, especially banks. 

So, your best bet is to learn to manage your debt before things get out of hand and you’re left with nothing in your bank account. With that in mind, here are a few ways to manage your debt more effectively, no matter how much you owe!

Consolidate Your Debt

Consolidating your financial obligations is one of the best ways to manage debt. With high-interest credit card debt, this is very beneficial. There are several advantages and conveniences to debt consolidation. The first is that each month’s interest rate will be consistent and predictable. The second is that there is just one payment to make.

Of course, keeping track of balances, payment dates, and interest rates might be difficult! However, debt consolidation solves this issue and organizes your debt into manageable payments. After that, you can start monthly principal reductions.

If you want to try debt consolidation, here are three ways you can do it:

• Apply for a Fast approval debt consolidation loan. These typically have a fixed interest rate. 
• Refinance your existing mortgage.
• Apply for a balance-transfer credit card with a zero-percent promotional rate.

In the end, before enrolling, ensure you are aware of all the conditions of the consolidation program you choose. These include the due date, the minimum monthly payment, and the interest rate. However, hiring a loan or financial advisor will help you learn more about the entire debt consolidation process and your available options. 

Create and Follow a Budget

Without a budget, how can you know how much money comes in and goes out each month? You probably don’t and never will unless you have everything on record. This situation is where creating a budget is the answer. 

Therefore, it would be wise to list your monthly costs to help you manage your debt and income. That covers each transaction made using your credit and debit cards and every receipt for cash purchases. It also covers everyday expenses like petrol, insurance, rent, and mortgage payments.

Each expense should be included under a specific category, such as housing, travel, food consumed at home, dining out, entertainment at home, entertainment away from home, shopping (for clothes, home goods, presents, etc.), travel, etc. 

However, don’t stop there. The next obvious step is to decide how you will spend all of your additional money. If clearing your debt is your priority, allocate a sizable portion of this sum to either paying off your high-interest debt or your combined debt. Then, whatever money you have left, you can use it to pay for amenities and other expenses. 

Control Your Expenditures

Preventing debt from building up in the first place is the easiest method to manage it effectively. Of course, we are not referring to debt like medical expenses, student loans, or mortgages. However, a short glance at your bank and credit card statements will show you various expenses that could’ve been completely avoided in the first place. That flash bargain on Groupon? Three different streaming providers online? All these things will add up and result in unnecessary overspending. 

Of course, some costs bring us much satisfaction for a fair amount of money. We won’t cut those unless we are in serious financial trouble. But, the fact is that we can cut them down. For example, instead of three streaming services, one will suffice. During happy hour, food and drinks are more affordable. Concert tickets are much cheaper if you pick them up at pre-sale prices. 

The point is that there are various places where you can avoid overspending. The best thing about this approach is that all that saved money will probably end up in your wallet, and you can use it to pay off your debts slowly. Sure, it’s up to you what you do with a large sum of money. But we advise paying your bills or putting money away for an emergency. 

Make A List of All Your Debts 

You probably won’t be able to manage your debt until you know how much you owe to the banks. So, list down debt that has to be paid off, including credit card bills, mortgages, student loans, auto loans, and any other financial commitments you might have. This list should typically include:

• Annual percentage or interest rates.
• Minimum monthly payments.
• Payment due dates.
• The amount you owe.
• The creditor’s name, such as MasterCard, Visa, etc.

You could feel inclined to give up after seeing the total and start planning your new identity in Mexico. Do not panic just yet! It’s just a number. Instead, do yourself a favor and pay attention to the objective at hand: lowering this amount. 

Deal with the debts that have the highest interest rates first. Since these rates account for a sizable portion of your monthly spending, paying these down will result in the highest long-term savings. It also makes sense to use additional funds to settle these debts faster.

But, if your debts are similar, start by paying off debts close to the maximum credit limit. For instance, if your credit limit is $20,000 and you owe $17,500 on your MasterCard, it might be a no-brainer to pay that off first. Utilizing all or the majority of your credit limit will lower your credit score and limit your ability to borrow additional money in the future.

The Bottom Line

Ultimately, you can become debt-free if you manage your debt effectively. Of course, sacrifice, time, and basic mathematics will be required to do such a thing. However, a little effort to remain debt-free will enable you to maintain a good credit score and a healthy balance sheet. After that, it’s up to you how you go on about enjoying the benefits of a debt-free life!