5 Important Tips on Managing Debt
Debt is good, but only if it boosts your net worth or significantly improves your life. Any other type of debt?—nobody wants to be associated with it.
It gives the impression that you are careless with money, a frivolous spender, or just have no idea how to handle debt. And if we’re honest, that’s not always the case. You could be in debt because of an unexpected divorce, layoffs, or student loans.
Unfortunately, the reality is that most of us are dealing with debt. In fact, research shows that by 2016, most typical UK household will owe about £10,000 in debt, according to research conducted in 2015 by professional services company PwC*1. Even worse, mortgage debt was not accounted for in that figure.
It’s tempting to shun away the reality of debt but denying your debt is not the solution. You must be savvy in handling the problem and know how to approach it. Find out more here – What is a DMP? And see if a debt management plan could help you.
That said, here are 5 tips on managing debt:
- Face Reality
What are your financial facts? How much do you owe? Start by making a list of all of your debts and ranking them according to their seriousness. Debts that have an impact on your house, including unpaid rent, bills, or council tax, should be at the top of the list. List hire purchase agreements, overdrafts, and credit cards farther down the list.
From here, you can establish a payment plan that works for you. You could try snowballing, which involves paying the loan with the highest interest rate in full first (while making minimum payments on the others) before moving on to the next. When you prioritize your debts, you manage the pressure they have on your finances. Bear in mind, however, that it’s critical to always take the repercussions of non-repayment or late payment into account.
- Create a Budget
Now that you know how much you truly owe, create a budget. You could use the online budget planner from The Money Advice Service to determine where your money goes each month and how much is left over after paying your primary obligations. With a budget, you can have an exact figure that goes to your monthly debt payments.
- Look Into Balance Transfers
Credit card balance transfers can help in lowering borrowing costs. You can avoid additional fees and accelerate the repayment of a debt by moving an outstanding credit card balance to a new, lower-rate card. For example, if you’re expecting a large sum and can pay the full balance in a short period, you could switch to a 0% credit card.
Keep track of the offer’s expiration date and make sure you hunt for the greatest deal. In many cases, switching to a credit card with a lower APR is more advantageous. While interest is still charged, it is typically less than what you are currently.
- Take Out a Personal Loan
More debt? Yes, because despite how it looks, a personal loan might actually help you manage your debt. You might be able to find an annual percentage rate (APR) that is far lower than the one on your credit card with a personal loan. According to Moneyfacts research cited in This Is Money* in March 2016, the typical credit card interest rates are as much as 21.6%2.
If you put enough time, effort, and luck into it, you might be able to find a rate that is half that, or even lower. Consequently, consolidating your debt into a single monthly payment can help, giving you more structure and less stress.
- Talk To an Expert
Regardless of how overwhelming it may feel to be in debt, financial assistance is always available. You could talk to an expert or contact a competent, independent organization like The National Debtline or Citizens Advice. They assist thousands of people in managing their debt daily.
Wind Up
Many of us find it difficult to talk about money, and it’s never simple to acknowledge you have a financial problem. While nobody is promising that controlling your debt will be straightforward, these tips will go a long way. Try them and change your story!
