Proper Debt Management

Nobody knows your personal finances better than you. Be your own debt manager and keep your finances on track.

In our day to day life there arise certain situations in which we might have had to issue mortgages, auto loan, lump sum loans, and home equity loans etc. which have compelled us to borrow money from others. While taking the sum we have certain ideas and plans regarding our method of payment to our creditors, however, because of some seen or unforeseen circumstances we are stuck in situations when we are unable to repay it back to them. In those situations the following tricks can come into practice:

Don’t ignore your debt: One of the first steps of proper debt management is to be fully aware of your debt. The debtor should be making lists of the amount that needs to be paid and the amount of interests that has to be paid along with it. He/she should realize the exact figure he/she needs to pay.

Plan ahead: Planning helps us to forecast for the future and gives us a clear idea of what shall happen if we stick or do not stick along with the plan. We must come up with a blueprint of how exactly we are going to earn enough to repay the loan and a backup plan just in case things go awry.

Segregate wants and needs: Differentiating between primary and secondary needs is very vital while managing debt. We must make a list of things which are absolutely necessary and things which we can manage without.

 

We must come up with a blueprint of how exactly we are going to earn enough to repay the loan and a backup plan just in case things go awry.

 

Compromise: While in the period of debt it is highly unadvisable to spend luxuriously when we can manage well off without them. Instead of going bankrupt in high heels and Armani suits it is better to wear cheaper clothes and still be a proud person who can hold their head high.

Build up and emergency fund (preferably an interest bearing account): Starting up a small account at the bank can be useful because emergency funds usually come with interest amounts that can surprisingly help up to clear off small amounts. It may seem unnecessary or irrelevant but it is a great tip to save small amounts of money that is certainly helpful for near future.

Create an income and expense statement: It is very crucial to know how much we can earn and how much we actually spend and on what. The best way of doing so is to create an income and expense sheet which gives us a clear idea of how much we can save at the end of every month and for how long the debt is going to last.

Avoid taking further credit: Although the idea may seem tempting we must not take extra credit. In these situations, usage of credit cards is a straight NO. It may be tempting to use them to buy stuff as payments are made much easier by doing so, yet, the interest propounded there might actually be more expensive than the thing you are purchasing. This will only add more principle and interest which you’ll eventually have to pay later.

Seeking lower interest rate loans to pay higher ones: Although it is not quite advisable to take further debts when one is already lagging behind to pay installments however, there are some exceptional cases where there may be some opportunities in which we can get new loan amount at lower interest rate. Such situations can be used to our advantage and can be used to pay off the debts with higher interest rates.

Start to make payments right away: Instead of leaving everything to the last moment, one must make payments regularly to the creditor when he has the adequate cash flow. Making regular payments to the creditor ensure that their sum will be repaid all the while establishing a trust based relationship with them which will be helpful during our period.

Negotiating with the creditors: If in certain situations we cannot manage enough money to pay the debt we can negotiate with our creditors to make our repayment a little more flexible so that we can extend our timing or reduce a tad bit in the interest rates instead of going completely bankrupt. In situations where one has issued home loans, auto loans or any such types, and has gone nearly bankrupt and sees no situation to repay the debt the last thing you can do to avoid bankruptcy is to re-negotiate with the creditors to sell the item (e.g. house, land or automobile) and use the capital to pay the initial sum as non-payment of debts can lead to bankruptcy causing the person to be blacklisted.

 

The trick to managing debt is to make sure that we are not running in a cycle of continuous debts.

 

Getting professional help: In case of crucial conditions where there is a requirement of professionals to manage the finances, professional help is always ready by the door if one chooses to open it. They can provide better opportunities to secure your debts and manage them effectively which can otherwise be a difficult task to do.

The trick to managing debt is to make sure that we are not running in a cycle of continuous debts. We need to be alert, quick and plan ahead of time to be certain that our debts are not piling up one on top of the other.