5 Debt Management Tips To Help You Be Debt-Free

Being in debt can be unnerving and hard to manage. However, the following tips can help you sort your finances and ensure you pull yourself out of the debt pit and be on the right track.

1. Owning Mistakes

If you have been hiding your bills or throwing them in a drawer inclined to the notion, “out of sight, out of mind” it is time to accept the reality. Assuming they will go away only see you dig yourself deeper into debt. So, start by taking all the bills, loan statements, and other documents related to your finances and reviewing them against your budget.

Bills like power, heating, gas, and water ensure that you enjoy the benefits of having such essentials. Your credit card and loan payments are often the base payments you deal with every month. It is best to start adjusting your lifestyle if the total amount your spend on bills exceeds your net earnings.

Alternatively, you can consider finding a better-paying job, selling assets like your car or house, filing for bankruptcy, or moving to a smaller house. If you do not take action, you will end up falling further into debt and potentially damage your mental health as you will be under so much pressure to pay the debt back. However, you need to remember to take the time to assess your circumstances and ensure you develop a debt management plan that helps you get you out of debt.

2. Paying Back

Debts or loans are unique, each having different terms and conditions. Therefore, create a payment plan guided by debts ranked according to urgency and priority. First, focus on loans or debts with the highest interest rates and then move to the low-interest loans, followed by non-deductible loans, and lastly tax-deductible loans. Also, try your best to avoid high-interest loans.

Close all lines of credit under the guise of safeguarding your future. Instead, keep a single line of credit which you will use during emergencies. Embrace a culture of saving for emergencies instead of running credit cards and going for loans. The objective is to have ready cash to pay for what you need instead of accruing more debt.

3. Request A Credit Report

Request and review your credit report, checking for patterns indicating spending inaccuracies or bad spending behavior. You can visit an approved credit bureau that tracks consumer credit. Top reputable credit bureaus include Experian, TransUnion, and Equifax.

Take the time to go through the report and understand your credit score. You can evaluate your annual spending as you analyze the documents. Credit bureaus allow consumers to request a free credit report once a year. Conversely, you can use free credit check services though they often have hidden charges or are not “free” since they ask you to subscribe before accessing their service which has a monthly fee. Read this guide on how to remove IVA’s from credit reports.

When analyzing the report, please take note of all accounts that pulled down your ratings to ensure they are accurate. You might think you are in a safe zone with your debts, but you can be pumped from green to red status because of a few late payments. Furthermore, you risk being flagged as a “high-risk” if you have significant credit card debt even though you are making monthly repayments. It is not something that sits well with many borrowers, but lenders will be strict because they have a big pool of consumers who qualify for loans.

4. Start Doing Damage Control

Commit to honoring the loans by paying them on time. Also, please take note of troublesome accounts and ensure you settle them first. Try limiting your spending, and tightening your budget to ensure you can lighten your loan burden. It helps prevent your credit score from tanking and can turn the tables to grow your score over time. Consider a lower-interest loan if your finances and credit score allows; money you can use to consolidate other debts to ensure you have a single loan to service. Hence, the repayment process feels less intimidating and quicker in the long run.

Check if you qualify for a balance transfer service if your credit rating is not in the red. Some credit lenders provide transfer services to help consumers pay off loans faster by shifting high-interest loans onto credit cards offering a 6 – 18 month grace period with no annual percentage rate (APR).

Moreover, some loans have a flat fee transaction cost or the charges can depend on the percentage rate of the amount a customer wishes to transfer. Please take note that you risk being categorized under the “high-risk” category if you fail to settle loans within the grace period, meaning you could face high-interest rates on loans.

5. Pay Extra When Possible

If you can use kill two birds with one stone, why not give it a shot? Double payments especially on high-interest loans are an effective strategy if you want to reduce the repayment period and settle your debts within a short period. Moreover, it allows you to focus on less demanding debts because you are using a systematic approach to clearing expensive loans.

Credit Lines

If you have a home equity loan or any other credit line, you might leverage it to clear your high-interest loan. Credit lines often have 3 percent to 7 percent APR compared to credit card rates that are in the 20 percent range.

It is a strategy that demands careful management of your spending behavior. Credit lines can be a nightmare if you spend beyond your means. terminating some of the credit cards to prevent yourself from using them and seeking deeper into debts may sound prudent, but it is better to put them away lest you damage your credit score.

A debt management plan will prove useful if you have trouble dealing with debt. Take the time to research and learn more about “What is a debt management plan” if you are new to it and feel it is the answer to your financial woes. Hopefully, you will discover different tips on how to make prudent financial decisions regarding loans.

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