Wednesday, 29 July 2015

Managing Debt

Debt, even a little, can cause lots of problems both financially and emotionally but there are steps you can take to try and reduce or even eliminate debt from your life. If you just have a little debt, keep up your payments and make sure it doesn’t get out of control. If you have a lot of debt you must put more effort into paying it off.

The first thing to do is list all your debts including who do you owe, total amount of the debt, interest rate, monthly payment, and payment due dates. Refer back to your debt list often, especially as you pay bills. Update your list every few months as the amount of your debt changes.

Late payments make it harder to pay off your debt since you’ll have to pay a late fee. Miss two payments in a row and your interest rate and finance charges will usually increase. Use a diary system on your computer or smartphone and an alert to remind you several days before your payment is due. If you miss a payment, don’t wait until the next due date to send your payment. Instead, send your payment as soon as you remember to.

At least make the minimum payment. Of course, the minimum payment doesn’t help you make real progress in paying off your debt. But, it keeps your debt from growing. When you miss payments, it gets harder to catch up and eventually your accounts could go into default.
If you cannot afford to make all of your payments then speak to the people or companies that you owe money to. Explain your situation and try to negotiate a new payment plan or ask them to reduce the interest being charged.

Decide which debts to pay off first. Credit card debt is the best candidate for priority repayment. Of all your credit cards, the one with the highest interest rate usually gets priority because it's costing the most money. Use your debt list to prioritise your debts in the order you want to pay them off. You can also choose to pay off the debt with the lowest balance first. You may want to consider consolidating your debts into a more affordable payment.

Budget well and use an emergency fund to fall back on. Without access to savings, you’d have to go into debt to cover an emergency expense. Even a small emergency fund will cover little expenses that come up every once in a while. First, work toward creating a small emergency fund. Once you have that, make it your goal to create a bigger fund, like six months of living expenses.

Keeping a budget helps ensure you have enough money to cover all your expenses each month. Plan far enough in advance and you can take early action if it looks like you won't have enough money for your bills this month by speaking to the creditor in advance of missing a payment. A budget also helps you plan to spend any extra money you have left after expenses are covered. You can use this extra money to pay off debt faster.

Try looking for additional sources of income. If your debt payments are unmanageable then either reduce your regular expenditure or try to find a little extra work, a part time job, online work or sell some belongings to help pay off that debt. In very extreme circumstances it may be even be best to clear the decks and start again with an insolvency order.

Doing nothing is not the answer to becoming debt free. Follow the advice above and hopefully you should start to see things getting brighter.

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