How can one manage debts?
While borrowing money for the right financial use is good, managing the debt is critical. Some of the skills required in debt management include:
- Know your total indebtedness: This includes the debts, interest and charges for each account. While this could be a slightly unpleasant wakeup call, it will give you a clear view of exactly where you’re at and how different interest rates and fees could affect the amount you pay back.
- Compare what you earn, owe and spend: One is able to have a better understanding on how much cash is required for essentials and where the rest of the money is spent on. There could be a room for improvement and one can even extract extra cash to be credited on the loan hence helping in reducing on the financing costs.
- Consolidate your loans into one: Multiple debts can mean multiple fees and interest charges, hence consolidating your debts into a one loan may help in managing the debts because you will potentially be making one repayment rather than having several repayments monthly. However, it’s important to also analyze whether you’ll will be saving money once you factor in interest rates, fees and any additional charges.
- Endeavor to pay your debts in time: It’s good to keep in mind that if you don’t make your repayments on time, you may end up paying more. Time management and debt-management often go hand-in-hand, as paying things when they are due can often help you to avoid default charges and other loan cost. Consider setting up alerts to remind you when your payments are due or explore whether you might benefit from paying by direct debit. Remember, late payments may also lead to negative credit reference listing, which could affect your ability to borrow money, as it reveals to lenders whether you’ve been paying your debts on time.
- Try to pay more towards the amount outstanding rather than minimum owing: While it might be tempting to only pay the minimum amount owing, when you pay more towards your debt you save on the interest costs especially when loans are based on a reducing balance computation. If you’re able to retire the debt earlier you save a lot on the financing cost.
- Get a better deal: Always negotiate with the financier the best deal as this will save on the costs. High interest rates and added fees can really affect how much you pay back.
- Have a back-up plan: Expecting the unexpected always goes a long way when it comes to your finances. Your loan provider could increase interest rates or change their repayment terms, or you might experience changes in employment or health, which could negatively affect the cash flow.
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