Managing debt can be a big headache as well as a nightmare that none of us want to experience. But that is not how it works. With the current market scenario, it is actually impossible for anyone to stay debt free for life. Did you know, in the US alone, credit card loans crossed the $1 Trillion mark?
We all will experience at least small debts in our life, and it is neither wrong nor bad. It is all about how to manage it. If you do it well, you can still stay stress-free even with a huge debt behind your back. Of course, you will have to put in the required extra effort, but it will be worth it. Here’s how you can kick-start:
1. Create a list of your debts
I am sure most of you rolled your eyes and murmured ‘I remember my debts, unlike any other thing!’. But wait, my motive behind this suggestion was not just memory but also to help you keep things organized.
Repayment is definitely not an easy task, especially when you are in this alone. Apart from basic understanding about debts and finances, it also demands to brainstorm, so create a list of how much you owe and to whom and list out every other detail about that particular debt.
2. Don’t forget paying on-time!
You need to ensure that you pay all your installments on time every month. If not, you will simply end up in a chain or cycle of late payments which is definitely not a pleasant situation considering the financial burden you already have on your shoulders. If you miss payment once, you are adding another figure on your next payment and naturally, that also gets delayed.
Apart from the late fees, your interest rate also rises and finance charges increase. Thus, to avoid all this, pay all your dues within the stipulated time limit.
3. Use a bill payment calendar
Although there isn’t such a thing as a bill payment calendar available in the markets yet, you can always create one. It is simple and is completely personalized. If curated nicely it will also help you reckon which debt can be repaid with which paycheck.
On the calendar, write the amount of each of your bills in correspondence to its due date. Now write the probable dates of your paychecks. This will help you stay organized and as well as meet payments on time.
4. During tough times, pay the bare minimum
While the most ideal situation is when you meet all your payment dates and emerge as a debt-free by the end of the stipulated period. However, time and situation don’t always follow the track that we have laid. So, in that case, make the minimum payments of any amount. This isn’t really progress, but yes, it will help you as the debt will not multiply manifolds, and prevent your account from going into default.
5. Prioritize your debts
Just like all your debts have different amounts and different needs, likewise, the repayment priority of the debts will also be different. Of course, you can ask that in the end, you need to pay all your debts, so why does the order matter?
It matters because there is a substantial difference in interest rates and you will not be able to pay everything all at once. The reason why you need to prioritize debts depends on its urgency to repay. For instance, credit card debts must be first on your repayment list. Although there is no hard and fast rule to regulate the repayment policies, recommendations of the international debt collection includes paying back the debts with higher interest rates, first followed by the lower interest rate debts.
6. Keep other accounts in a good place
None of us can pay debts beyond the limits of our account balances. Therefore, in case you have limited funds for repaying debt, it does not mean that you must withdraw money from your other accounts with a positive balance. You need to keep them in a good place to keep a financial standing. Instead, let the due accounts pass and pay when you can afford them.
7. Fall back on an emergency fund
If you do not have an emergency fund in place, build one with whatever you can save right now after paying for your debts and other expenses. Crisis doesn’t come knocking at your door, thus it’s always wise to keep a reserve of six months of living expenses.
Managing your debt is certainly not a cake-walk but it isn’t impossible either. Think about the debt-free life that awaits you and stick to the plan. Before you even realize, this dream will turn into reality!