Debt is nothing but pure havoc wrecked upon your financial security. Like a parasite, it sticks with you long into the future, crumbling away your wealth and livelihood. However, unfortunate circumstances may have forced you to become dependent on it.
These circumstances could be a health emergency, an urgent need for funds for an investment, or just you trying to keep afloat in a hyper-inflated economy. Whatever the reason, if you’ve found your hands tied in debt, don’t worry because this article is here to help.
While this miracle may or may not manifest suddenly, it’s important to note that you can be your savior in these times. You have the power to change the course of your debt and leash it before it spells deeper trouble. And all this depends on your actions and intelligent decisions made timely.
With this article, let’s explore some highly effective approaches you can take to overcome your debts.
1. Opt for Debt Consolidation
In retrospect, this is the most popular method of getting a jump start on managing your debts. Debt consolidation allows you to pay all your recurring debts in one go and, in return, offers you a cumulative debt and interest rate to be paid to a single creditor.
Essentially, you can wave multiple creditors and that tedious credit report of yours goodbye. There is no longer a need to keep track of the many debts you’ve taken; you are accountable only for one debt.
In countries like New Zealand, debt consolidation options are available at your disposal, and to add to your convenience, some companies like Nectar will help you out. Just visit their website https://nectar.co.nz/.
You can easily access your debt repayment plans through similar services in your own country and let the experts hack away at the cumbersome debt list.
Such companies not only help prioritize your loans and tackle the burdensome ones first, but they also provide more feasible equated monthly installments (EMI), lower interest rates, and a less stifling period to make payments.
2. Avalanche vs the Snowball method
The Avalanche method makes you pay the debt having the highest interest rate first, which makes sense when you think about it. High-interest rate debts are leeches that shrivel up your bank balance unimaginably fast. Therefore, it’s important to take care of them first.
This method is fruitful for those with a few high-interest debts to cross them out of your worries while making the minimum allowance for all your other debts. If you plan to save money in the long run, the Avalanche method is the way to go.
However, if your biggest concern is reducing your debt list as quickly as possible, choose the Snowball method. In this method, you pay the debt with the smallest principal amount first while ensuring that you are up to date with the minimum allowances for the rest of your repayments.
The Snowball method boosts your morale and encourages you to sweep the remaining debts under the rug.
3. Make a credit report
Next, we recommend drafting a credit report to decide which repayment strategy works out best for you. Don’t be fooled by the fancy name; a credit report is a simple document listing all your debts, creditors, tenure of repayment, and interest rates.
While it doesn’t require specialized knowledge to take on, if you feel short on time and rather not get into the hassle of jotting all the information down, you can opt for free or paid services available online to create your credit report.
Moreover, you can also find out your credit score in this way. This score determines how capable you are of paying back the debts and accounts for your complete credit history. The next time you take a secure loan from the government or a company, they’ll ask you for your credit score to determine the interest they should charge you and your likelihood of receiving the loan.
Some simple ways in which you can boost your credit score:
- Diversify your credit accounts, i.e., take different types of loans such as those for a mortgage, education, etc.
- Be prompt with deadlines
- Cross out negative information on your credit report
- Ask your bank for a higher credit limit on cards
4. Revise your household budget
Start your debt management from home, and determine the areas where you can make adjustments to pour in the extra money to repay loans.
Experts suggest that you try the 50/30/20 rule i.e.
- Invest 50% of your income in the essentials. This includes anything necessary for survival and work, ranging from food, electricity, transportation, house rent, etc.
- Spend 30% on the things you want. This includes expenditures that can be avoided in the long term, and the percentage can be slowly but steadily reduced to make space for more debt repayments. New clothes, devices, comic books, etc., whatever that can be pushed off buying to a later date counts as wants.
- Allow 20% for your loan repayments. Once you’ve gotten the hang of managing your finances, you can increase this percentage so that it doesn’t abruptly affect your spending habits.
We know how embarrassing it can be to tell someone in your social circle about your problems. As human nature dictates, it is a direct jab at our fragile ego and makes us fear the judgment or the pitiful looks they might throw our way.
But the truth is, the simplest way out of a horrible debt situation could be solved by asking for help from friends, family, and trustworthy co-workers.
Not only will you have lenient deadlines and someone you can negotiate comfortably with, but these creditors will be more sympathetic and willing to lend an ear than stringent loan sharks.
You can also opt for an advance on your salary, provided that you don’t become too dependent on it and have an emergency fund on the side to take care of living expenses.
With the above strategies in mind, the road to debt repayments is smooth sailing. Whether you choose the avalanche or snowball method or decide to consolidate your debt, combining all the tips mentioned in this article will give you the best shot at managing your debts, ultimately shoving them out of your life for good.