Dream with me for a moment. Imagine your credit card debts are all forgiven, your student loans are all wiped clean, and your car payments are gone and paid for. Imagine YOU were completely debt free. What would you do with your money? What would you do with your time? Would you spend more time with a loved one? Would you take that vacation you’ve been dreaming of? Would you buy something nice for that special person? Would you save or invest your money? The possibilities are endless!
To get to a place where debt is a thing of the past, you need to start somewhere. Getting into healthy spending habits is like getting into shape, you need to make it a daily routine and manage your spending and debt payments, so you can be debt free. Whether or not you only have a little bit of debt or a lot, you need to start putting effort into making payments and keeping up with all the debts that you still need to pay. This article will focus on simple methods to manage your debts.
1) Create a List
Create a list of all your debts, the creditors, the amount you owe, the monthly payment and due date. Use your credit report to confirm all the debts. Once you have all your debts laid out in front of you, you can begin to see the bigger picture. You can update this list every month, once a payment is made, you can set goals for yourself to indicate when you want to have some of your debts paid off. This will put everything into perspective, and can be quite rewarding as you can visibly see your debts growing smaller and smaller.
2) Urgent Debts First
Because credit card debt usually have higher interest rates, consider paying them off first. If you have more than one credit card the best strategy would be to prioritise the one with the highest interest rate, because that one cost’s the most money. Use your Debt List to rank each debt in the order of most urgent – and the order you want to pay them off. Another tactic to keep in mind, is consider paying the debt with the lowest balance first.
3) On Time, Every Time
Missing payments will make it harder for you to pay off your debt, since in most cases you’ll pay a late fee, essentially causing you to pay more than you should. You can set a reminder on your phone or a calendar app to remind you when and how much you need to pay on a specific day, maybe even a day before it is due. If you do miss a payment, don’t wait for the next month to pay, by then it could be reported to a credit bureau, instead pay on time and avoid the whole fiasco in the first place. Make at least the minimum monthly payment every month.
4) Budget for Everything
Setting up a budget is simple, and can help you achieve your financial goals. This can guide you in saving for the future, while ensuring that you have enough to spend on the things you need. Keeping an accurate budget will help ensure that you can cover all your monthly expenses, so that you don’t have to get into debt in the first place. Plan far enough ahead so that you can take early action if it seems like you might not have enough to manage your debs this month. If you have money left after all your expenses are covered for the month, use it to pay off debts faster.
5) Emergency Funds
Life is very unpredictable and sometimes unforeseen expenses can occur. Who knows what might happen? Make sure you have a small emergency funds in case this happens. Start to work toward creating a small emergency fund, saving a little bit of money at first. Set a goal and work towards that. Once you have achieved that, set a new goal and keep building a bigger fund. Eventually you want to build up a reserve of about 6 months of living expenses.
6) But What If?
If your funds are limited some months, (which can sometimes happen) and you can’t make the minimum payments to all your accounts, focus on paying the debts that are still in good standing, to avoid losing your positive accounts for those that have already affected your credit. Pay the past-due-accounts when you can afford to. This should only be in case of emergency, as you should strive to always pay all your accounts on time.
If you are struggling to keep up with your debt, contact Debt Sense Group today!