Now represents a great time to take control of your finances. If you have debt, then you already realize how stressful it can be to manage your finances with this burden on your mind. However, it doesn’t have to be this way. There are practical things you can do to tackle your debt now that way you have peace for your future financial health.
Whether it’s using personal loans to shorten how long you have to pay on your debt, or instituting a new budget as part of your plan of attack to tackle debt, these strategies offer practical tips to assist you.
Know Your Situation
The first step is to understand your financial situation, including how much you make monthly, your reoccurring expenses and the amount of your total debt. While this might not seem like a fun exercise to do, it’s important to understand where you are, particularly as it concerns debt. To do this, you’ll want to grab all your credit card and loan statements. Next, you should write down the total balances owed, the minimum payment and interest rate you pay on each debt.
Get Your Financial House in Order
Organizing your bills and their respective payments is an excellent way to take control of your finances. Not only will this make it easier to manage payments, you won’t miss payments either, which could lead to higher interest rates on credit cards and unnecessary late fees. There are several ways you can use organization to aid you:
- If you opt for the paper method, create an organization system whereby you mark a calendar or have a list set up on your desk to show the due dates for each bill.
- Meanwhile, if you prefer to do things electronically, you can use free personal finance applications like Mint. With Mint, you can set up payment reminders via text as well as have access to all your accounts in one place, making it an excellent resource to manage your debt.
Develop a Budget
Budgeting isn’t fun, but there are tons of resources to help you with this. As noted above, personal finance applications like Mint are great in that they compile all your banking information then break down your expenses by category, giving you a better idea of where your money goes. Along with these applications, you can visit your local bank or credit union to speak with a personal banker, who will be happy to assist you in setting up or looking over your budget.
Make Goals
Budgets without goals are directionless and make it easier to focus less on them as time goes by. This means it’s ideal to set a few benchmarks you want to achieve in the short term (six to 12 months) to longer goals, such as paying off all your debt in five years. To illustrate, say you want to save $500 in the next six months, which equates to $83.33 a month. This means you have to find a way to come up with that money. Whether that means cutting down on eating out, doing away with cable or another expense, setting goals force you to alter your spending habits to achieve what you want.
Devise a Plan of Attack
There are many methods you can use to tackle your debt repayment. One of the best is Dave Ramsey’s debt snowball method. How this works is you examine your bills to identify the debt with the smallest balance owed. While making payments to all the other lenders, you use whatever extra funds you have to pay off the smallest balance as fast as you can. Once you pay if off, you move up to the next smallest balance. This approach gives you momentum towards paying off your debt because you see progress as you move along. What’s more, since you are using extra funds you squeezed from your budget to pay off your debt, you are developing great financial behaviors.
Shorten the Length of Debt Repayment
As part of your plan to tackle your debt, it’s important to focus on finding ways to shorten your debt repayment. For example, if you have credit cards with higher interest rates and you pay the minimum balances due each month, it will take you many years to pay down the debt, often times at much more than what the original balance was. Instead of taking this approach, find better alternatives.
If you have a good credit score and carry balances on high-interest credit cards, then consolidating all this debt into a personal loan is a great option to consider. What this achieves is you are still paying off those debts, but you are doing so at a lower interest rate, resulting in you paying less in total loan costs. Moreover, because you are consolidating multiple accounts, it makes it easier to manage your debt because you only have one payment per month. Lastly, since personal loans have short repayment terms -between two to seven years- you pay off your debt quicker.
This makes consolidating your debt a good option to consider if you fit the requirements listed above. If you are ready to take this approach, here are a few things to consider:
- Not all lenders are alike in their product offerings, as some might charge you more in fees and personal loan interest rates. To find the best personal loan providers, MoneySavingPro has an excellent comparison tool, where you can read reviews of the top personal lenders based on their reputations, available products and customer service.
- Only do this approach to shorten your debt repayment. Remember, the quicker you can pay off your balances, the less you pay for the debt. Therefore, try to opt for a short-term (3 years) over the longer terms.
Ultimately, tackling your debt is a manageable process. While it can be stressful initially, it’s important to employ these tips because they can help you regain control of your finances. Not only can this help you adopt sound financial behaviors, but it also helps you work towards a debt-free future.
