When most of us hear about someone having debt, we immediately assume they are standing on the brink of poverty and imagine the grimmest scenario. Stories of people being evicted from their homes or having their personal assets seized by the bank come to mind. That’s because the word debt has always had a strong negative connotation. Of course, it would be preferable to always be debt-free and never need to borrow any money, but unfortunately reality is a bit more complicated than that. Debt always finds a way to creep into your life and you start thinking of it as a necessary evil.
However, debt shouldn’t be regarded as being generally bad. In fact, debt can also be a positive thing for your finances. It all depends on how you deal with it. If you make an informed decision, you are able to repay what you owe on time, and the money that you borrowed generated a positive outcome, the debt is worth it. If, on the other hand, you jumped into borrowing money without careful consideration and then you realized you owe more than you can pay and all roads lead to financial loss, then your debt is truly a burden.
Most people learn how to handle their finances the hard way, but it would be a lot less stressful if they were able to understand how things work before making costly mistakes. The whole idea is you can have debt and live with it comfortably if you know how to manage it the smart way. Not sure how to make it happen? Here are some of the most effective tips to help you tackle debt like a pro.
Assess your current debt situation
The first step towards making wiser debt management decisions is to have a clear understanding of your current financial state. It’s not pleasant to always think about money when you never seem to have enough, but it’s crucial to stay on top of your finances if you want to avoid serious money issues. Burying your head in the sand won’t make your problems go away. Make a list with all the debts that you have, no matter how big or small, and don’t forget to include interest rates, monthly payment amounts and due dates. After putting everything down on paper, you might have an uh-oh moment, realizing the seriousness of the situation. That’s to be expected if you never took the time to evaluate your finances. But once you go through this assessment process, you’ll have an overall view of your debt and you can start working towards reducing it.
Avoid late payments
Better late than never is a good approach in most cases, but you shouldn’t base your financial habits on it. Always strive to pay your debts on their due dates every month, because falling behind on monthly installments will only make the burden heavier. When you’re late on a payment, there will be additional charges and higher interest rates to take into consideration, and even without these extra fees you’ll still have to pay out a larger amount of money at once to get back on track. It only takes one failed payment to get your finances spiraling out of control and mess up all your plans. If you do miss a due date, try not to pay as soon as possible, preferably before the next due date.
Draw up a payment schedule
To help you keep up with your payments, try to come up with a schedule and stick to it. Create a calendar where you can write down the payments you have to make, the due dates and the amount of money that you have to put aside for each of them. Having them in front of you all the time will make it less likely for you to forget about a payment. You might think you can remember all of these details, but experience has taught us that sometimes life can get so hectic that even the most important things can slip your mind.
Prioritize your debts
Not all debts are created equal. Some put more financial strain on your budget than others and therefore are more urgent, so you should prioritize them accordingly. You should try to get rid of loans with high interest rates first because they make you lose more money. Make the minimum payment for loans with low or fixed interest rates and allocate a larger amount of money to pay your bad loans. Paying off credit card debts first is a good starting point since they usually come with higher interest rates.
Consider a debt consolidation loan
When you have to pay multiple loans, things can get a bit tricky. For a person who lacks the knowledge and tools to handle complicated financial situations, it can be hard to manage credit card debts, mortgage payments, auto loans and all other debts that might have accumulated in time. That’s where debt consolidation loans come into play to help make the process of becoming debt-free a bit smoother. A debt consolidation loan helps you pay off all your debts, usually offering lower interest rates and fees. Think of it like gathering your existing debts under the same roof and having only one landlord to deal with.
Create an emergency fund
It never hurts having a financial safety net in place to help you overcome difficult or unexpected situations. You can plan all you want, but you can’t foresee everything that can happen in the future, so it’s best to be prepared for the worst-case scenario and contact any Richmond Hill mortgage broker. An emergency fund can keep your finances afloat when you have to deal with expenses that weren’t included in your initial budget. It will help you avoid going into further debt when unwanted surprises come your way. You don’t have to put aside large amounts of money to create an emergency fund. It’s enough to direct small amounts regularly towards a savings account and only use the funds in exceptional circumstances.