Accumulating debt can put enormous strain on you and your family. The bills are piling up, and you cannot afford to pay a dime. Even if you don’t realize the real problem, or you don’t foresee the rainy days, you need to take action now and begin to actively manage your debt. Best to do it now before your debt accumulates to the point of declaring bankruptcy.
Here are some useful tips on how you can better manage your debt, today.
Your debt may comprise of mortgages, credit cards, personal loans, and so on. Make sure to set priorities on what you need to pay first. For example, you cannot ignore your tax responsibilities to pay off your credit card because an IRS notice is not what you need right now. Prioritize your debt and pay off your bills on the basis of importance.
Many people prioritize on their credit card debt to take advantage of a lower interest rate as their balance is getting lower. You may also pay off the debt with the lowest outstanding balance.
Pay more than the minimum
People think that making a minimum payment on their credit card is lowering their debt. However, credit card minimums are close to 3% of the outstanding balance, which means that, if the interest on your card is 17.5%, you pay nothing towards your balance.
In contrast, by paying more than the minimum, you are more likely to get out of credit card debt in the long run, but you should be very disciplined in your payments. Some ways to do this is to stop using the credit card, to pay off an amount that could lower the balance using your savings or cut back on your total spending to save some cash.
Don’t delay your bill payments
Often, your debt becomes enormous because you are not paying your bills in due time. However, late payments on your bills may lead to higher interest rates and finance charges. If you cannot afford due payments, try to make the minimum payments at least.
Although you will not pay off your debt off quickly, you will avoid fees and interest charges. If you miss your payments out of neglect, set alerts on your computer or your smartphone one day before the due date.
Create a budget
A budget can be really helpful in keeping track of your finances because you can see clearly what you are earning and what you are spending. Include all sources of income as well as fixed and variable expenses. Your budget needs to be accurate and realistic to serve your spending needs.
At the end of the day, what you need to learn is how to spend your money wisely and in a controlled way. To best manage your debt you have to be intentional about where every dollar is coming from, and where it’s going.
Establish an emergency fund
Most people liquidate their 401k or overcharge their credit cards to handle a financial emergency. Although the 401k is a retirement plan, the government allows borrowing, but there are charges such as higher taxes and penalties. Also, charging your credit card every time you face unexpected expenses, creates nothing but a never-ending spiral of debt. With an emergency fund, you know there is a cushion where you can withdraw money from.
Just make sure to establish an emergency fund that suits your needs. According to experts, an emergency fund should be equal to at least three months’ worth of your living expenses.
In short, managing your debt comes in all shapes and sizes. If you don’t take action early, things may get out of control until bankruptcy becomes your only option. Thus, before the problem becomes extreme and unsolvable, make sure to understand the wrong signs and manage your debt to save yourself from financial distress in the future.