Debts can be as calm and cool as a lake or river, but it is required to know its depth, the currents underwater and other dangers lying underneath to swim safely ashore. Therefore, if you are in debt, which is a common fact now and is not at all bad, you must follow a few simple steps so that you can manage your finance well and with success.
You must plan your moves right from the first day you incur debt if not before that for staying out of the debt hole. If you ignore the consequences of debt and the impact it will have on your finance and personal life as well, it will be you who is to blame for ending up in such a difficult situation.
A proper budget will help a lot
You must start budgeting right from the very beginning. If you are not very good in budgeting, then you may take help of the numerous budget tools that are available on the internet.
- Apart from budgeting, you must also consider paying off your debts immediately and make proper arrangements for the desired resources. Creating a corpus by a savings account is the most suitable and feasible option.
- Once again the budget will help you to know how much money you can put away in the savings account so that you do not have any problems in paying your monthly bills on time and not default on any. A proper budget will enable you to know your income and about all your expenses that are necessary as well as unnecessary.
- When you identify the unnecessary expenses and strike them off from your budget, you will not only reduce your monthly payments but will also find enough money to save for your emergency corpus.
Just make sure that this amount of money saved is used for repaying your loans only and not spent on purchases for which you should follow your budget.
The minimum amount payable
The minimum amount you pay every month for your debts is also a very important factor that will help you to manage your finance.
- This is the amount that will prevent any penalties of overdue on your principal loan amount.
- You must never pay less than this amount as that will fetch interests all of which will be compounded to reach to the fairly large amount and cause further worries.
- If you want to pay off any debt, then start with the ones that carry high interest. This way you will not only save on the high interest but will have enough money in hand to pay off the next loan that carries a lower rate of interest.
Paying more than the minimum amount will enable you to clear your debts fast but then the availability of such an extra amount of cash will matter.
A balance transfer is also another option you can consider which is consolidating your debts into one particular debt. There are a few things to consider when you want to consolidate your debts. It is suggested that you go through the debt consolidation reviews or consult with a credit counselor to know more about it as well as your other options to get rid of your debts.
One of the best ways to manage your finance and stay out of debt or unmanageable debts is to limit the use of credit cards. If you know that your budget does not even allow you to pay the minimum amount on your credit cards, then you must store these plastics in a secure place and carry cash when you go out to shop.
Carrying cash will stop splurging and impulsive buying. You will stick to your necessities and therefore limit your expenses which will add fuel to your debt and finance management endeavor.
In the end, it is all about your diligence and the strategic planning of your debt management that can either make or break your financial health.
Consider the situation and your means
Debts are not a bad thing by it, but it is how you use and manage it that matters the most. Ideally, there is nothing called a bad debt till the time it is within your manageable limits. It is therefore required that you consider your current financial situation and your means to take on debt.
- Debt which largely depends on deficit financing can create wealth for you if you know how to use it. You will then be able to manage debt properly and to build your financial wealth keeping it steady all the time.
- You must also assess and know the dangers involved in debt. This will help you to find easy and effective means to control your household finance.
In simple terms, when you take on debt to buy something that will appreciate in value in the future, then you are adding on wealth, and at the same time, the debt is considered as good debt. For example, a home loan is good debt as your home will have an appreciated value over time. It will create an asset that will never depreciate in value provided that you maintain your home properly. Similarly, debts must be maintained properly, and the only way is to pay it back on time.
Ideally, debt management is nothing but creating a financial discipline that will give you the mental strength that you will never default on any monthly bill to add on to your debt.
Look for the signs
You must look for the signs that will indicate that your finance is going out of control. Just like any ailment, debt too will show significant and characteristic signals to you. These signals are:
- When you have to frantically search for means to arrange the money for the repayment
- When you see that the money for repayment is more than the inflow of cash
- When the value of the asset falls below the loan amount and
- When you see that every month some amount is left unpaid.
If you know these signs, you will be able to take immediate remedial measures.