Debt Management: What It Is & How To Get Away From Debt

The general view about debt is that there is no good debt. However, acquiring loans is the only way for most people to own big-time assets such as cars and homes.

Although such loans are justifiable as they add to a person’s value, there’s the other side of acquiring debt for no significant reason. Other debts are even hard to categorise. Whether debt is good or bad,  you have to repay it precisely in the shortest duration to evade heavy interests.

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What Is Debt Management?

This is a means of getting debt under control through a budget and financial plans. A debt management plan aims to implement effective tactics to assist you in lowering your debt as you continue to get rid of it entirely.

A debt management plan can be created personally or through the assistance of debt counselors, yet either option has its pros and cons. For instance, personally creating the plan is straightforward, but using professionals could, on the other hand, be more effective regardless of the effort involved in engaging the professional.

Are you struggling with debt? If so, here are some insights that can slowly help you to get out of debt completely.

How To Get Away From Debt

1.   Avoid Borrowing Money

The immediate step in avoiding debt is making an effort not to borrow money. And borrowing entails swiping credit cards and acquiring loans of any kind, whether long or short-term ones. The idea is to change your attitude towards cash and debt.

So, try to get your facts right about the impact of swiping credit cards or acquiring loans, and this way, you will manage to avoid getting into deeper debt. Let your goal be living on cash, and avoid taking loans to settles other debts. If possessing a credit card makes it hard for you not to use it, you can dispose of it. Try anything that works for you to evade getting into debt.

2.   Analyze Your Spending Habits

You need to understand where your money goes for you to get out of debt fast. Failure to have a budget makes it even more difficult to know what you can cut on to gain financial stability. So, keep track of your daily and monthly bills, including your debt repayment commitments.

Some ideas on how to track your money include the following:

  • Using banking app trackers
  • Keeping receipts
  • Utilizing a budget worksheet
  • Keeping notes in a notebook

Whichever method you select, ensure that it is convenient for you to utilize at any moment, as this is the only way you will get a clear picture of how much you spend and on what items.

3.   Create A Budget

It is time to draft a budget that includes all your needs having identified your spending trends. Through tracking, you’ll manage to identify the areas you can cut down on costs without necessarily creating a major difference in your living.

Up Your Gift Game

 In the same way, you’ll come across areas that require adjustments you are not willing to make. Try to strike a balance between a strict budget and basic needs to avoid debt.

One means of making a budget meaningful is writing its details. Planning with the mind is not enough since you may forget some details. Other details you can draft in the budget include financial goals.

Similarly, writing down your goals makes them more achievable. Although your focus is getting out of debt fast, do not overlook contributions towards an emergency funds kitty. Once you’re done with debts, you may set other goals to save towards, but do not forget to include them in the budget for accountability purposes.

4.   Consider The Debt Snowball Method

Having tracked your spending and compiled a budget, you can now create a payoff plan. For fast debt clearance, you need to have a solid plan that will maximize the payoff schedule. In this case, you can try the ‘debt snowball’ tactic.

This strategy can quickly help you to get out of debt. It entails making minimal payments to all your debts except one. This means that one debt gets paid off faster because it is paid more than the monthly required amount.

Once one loan is settled, you can select the next debt to settle fast in the same way. And the process goes on and on until you are free from debt. With time, the extra cash shall start funding the snowball while the cash assigned to settle debts remains the same.

For instance, assume you are allocating 30% of your monthly profits to pay off debts, reflecting $400. If you have five debts, you’ll distribute $50 each for four debts and $200 for one debt. And when it’s paid off, you can assign $250 to the next prioritized debt as you keep it at %50 for the other debts.

Most importantly, maintain consistency in the amount of money you spend on debts every month. For example, if you decide to spare $400 for debt payment, make sure the routine goes on, even after completing the first debt.

This strategy hastens your debt repayment process. Although the choice of the debt to settle first may be determined by various circumstances, one of the key elements to consider is the loan that incurs the highest interest.

5.   Negotiate Your Credit Card Debts

Are you aware that you can renegotiate your credit card contract? Indeed, you can, and in the process, you might get lucky to qualify for lumpsum payments instead of monthly payments, which are often more costly. This is called debt settlement.

But, how does one go about the debt settlement process? Inquire by calling your creditors and request a lower interest rate on your credit card. If you have a positive payment history, you are likely to get relief.

In the same way, you can negotiate credit card fees. Where creditors are unwilling to lower the interest, they can overlook recurring charges and other fees you incur for using or owning a credit card. Note that the only bill you can lower over a phone call is a credit card.

And don’t underestimate the power of this call, as it can save you a  great deal as far as your credit card debt is concerned. The fact that companies want to retain clients means that although you may not get lowered interest, you may be lucky to qualify for lower monthly repayments.

Again, avoid limiting yourself to one company if there are competitors who can offer you better rates. Also, be open to negative feedback after requesting interest adjustments. It’s not a guarantee that you’ll qualify, and anyway, if you are committed to paying all your debts, you’ll notice an improvement in the situation.

6.   Invest in Credit Counselling

Credit counselors are professionals who assist people in managing financial affairs, including debts. In debt matters, these professionals are trained to negotiate with lending institutions on your behalf to achieve a manageable debt management plan. Hence, you send the financial counselors a lump sum amount of cash every month, and they divide and pay off creditors on your behalf.

Please note the difference between debt settlement and a debt management plan drafted by credit counselors. Do not worry about not being able to afford debt counselors as most of them work for nonprofit organizations, and you can easily acquire their services from local member agencies.

It is vital to note that debt management is not an instant solution to your debts. Plus, it does not cater to secured loans like mortgages. In the same way, debt management does not halt your bills, and so you may have to come up with income-generating activities to cater to the existing bills.

While debt counselors can negotiate low interests and monthly repayments, bills need to be paid regularly because missing out on the payments works against your favor. For instance, your credit card gets affected negatively, and your creditor may reconsider the negotiated repayment plan, leaving you in the same trouble with your debts.

Bottom Line

Some steps may seem quite easy to implement. For instance, it can be simple to avoid debt and create an emergency fund kitty. But although they seem straightforward, they play a major role in building a solid financial foundation that will allow you to get rid of debt quickly and conveniently.

Do not forget to track your progress as it keeps you focused, and it’s also a constant reminder of how close you are to getting out of debt. Don’t give up regardless of how much debt you face because there is a way out, and you can regain financial freedom.

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