When it comes to financial management, debt management is an excellent skill. Whatever the type of debt – car finance, student loan, home mortgage, here are debt reduction skills and strategies that can help eliminate the debt sooner.
Compare what Earn, Spend and owe
This comes down to having a realistic view of what you earn and the amount you spend. You need a budget that will contain the following amount:
Your cash inflow like money from jobs, investment, or even side income
The bills for essentials like groceries, rents, and other expenses
The expenses on non-essentials like TV, subscriptions, etc.
The leftover.
This can open your eyes to anywhere you might improve and potential means of saving to allow for debt repayment.
Consider Loan Consolidation
With multiple debts, there are a series of interests and charges. Depending on what you owe, consolidating debt into a single one with a reasonable interest rate might be a worthy alternative.
Consolidating loans to a single payment makes it incredibly manageable since the repayment becomes one. However, make sure to consider some things before loan repayment. For instance, will the repayment indeed help you? Is there any extra charge?
Finally, debt consolidation only makes sense if your repayments are made on time. If not, it could translate to more fees and interest.
Be Timely with Debt Payment
When you pay your debt on time, it will save you many expenses like interest charges, late fees, and others. Make sure you have an alert to inform you when deadlines are closed. Also, you could set up a direct debit on a monthly or fortnightly basis.
One needs to bear in mind that late payment can dent one's credit report. This includes personal details, type of credit cards, and repayment history.
Many times if you want further loans, credit providers will base their decision on this information. People with regular missing payments or without an impressive history might have issues with approval.
Ensure What you pay is more than the Minimum Amount owed
In making repayments, there are two options – to pay the entire amount you owe or the minimum amount you owe.
One might think that the minimum amount owed is a good idea. What many people do not know is the balance left still accrues interest. With this, there could be more money owed. Paying the total amount, however, removes the burden of any claim.
Consider Extra Repayment if Possible
A recommended debt repayment strategy is to consider extra repayment besides the regular repayment. With this, you get the debt off faster with less interest. You could save thousands depending on what you owe.
Also, make sure you are aware of the terms of the loan. Some lenders might have charges for early repayment.
Consider Better Deals
Excessive interest rates and extra fees can affect what you will pay besides the principal loan amount. For people with credit cards and loans, a way to save is to compare sites around and consider locations that will give a lower interest rate or a more palatable repayment option.
Make a Contingency Plan
Debt management often comes with unexpected issues. There could be a change in a repayment plan, increase in interest rate, changes in the health or employment plan, etc., which could affect your repayment plan.
With a contingency plan like an emergency fund, you can avoid missing payments, penalties and ultimately avoid accumulating more debt.
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