Hard times are seemingly around every corner, from the ripple effects of the pandemic, rising fuel prices, inflation, salary cuts, a medical emergency, car repairs, and business layoffs. You may have needed to take out a loan to keep afloat during these challenging times. Debt can easily be overlooked and mismanaged. For whatever reason, you find yourself in debt, there are several ways to manage your debt. When debt is mismanaged, you may be paying additional costs or hurting your future financial options. We have a list to manage your debt more effectively and keep you on the right track.
1. Manage your spending habits
Your spending habits are a significant indicator of your financial success. There are many South Africans that find themselves acquiring more debt than expected. This is especially true for those who don’t review their finances on a month-to-month basis. A budget is paramount to staying on top of your finances. As with any budget, you make a list of expenses; this includes any additional debt in the form of your monthly repayments. Ensure that you can effectively cover all your costs based on your income. One way to manage your debt is to review your budget monthly. Consistently see where you can save and minimize overspending. Money saved is money that can be put toward reducing your debt and reducing the cost of debts.
2. Tracking your debt accounts
Another way to manage your debt is to review your credit report, specifically the accounts section on the report. Here you will find all your credit card accounts and loans placed under your name. Additionally, with such a report, your accounts will indicate their status. Namely in the form of “current” or “past due”, as well as their limit or balance and terms. With such a record of your debts, you should easily be able to keep track of your debts.
Another excellent means to make use of this report is to make use of a personal spreadsheet. This can be in the form of either a written or digital record of each account. With this personal spreadsheet, you will record the creditor’s up-to-date balances, interest rates, and monthly payments. Due dates are significant, as well as the terms. Lastly, calculate the original ratio and final payoff date you expect to settle such a debt. With a record on hand, you more easily manage and identify what action will need to be taken regarding your finances.
⚡Managing debt effectively requires understanding all your options. One approach is using a personal loan to pay off high-interest credit card debt, which could simplify your payments and reduce the amount of interest you pay over time.
3. Calculate all your initial debts
Apart from a budget, listing your debts, whether small or large, will give you a greater understanding of your finances. Get familiar with the loan terms you have agreed to. Regarding smaller debts paying these off sooner will result in fewer costs in the long run. Remember that these can come in the form of monthly admin fees, interest rates, and prepayment fees should you pay debts ahead of time. By paying off smaller debts, you will free up additional funds that can be put toward other expenses and possibly pay off larger debts sooner.
4. Always pay more than your monthly minimum repayments
You can quickly pay the bare minimum on your monthly repayments on outstanding debt. You will remain in debt for longer when you pay the minimum monthly repayments. During this time, you will additionally have to pay more in interest in the long term.
Your best approach to getting out of debt sooner will be to pay more on your monthly repayments. By getting ahead of your repayments, you pay less interest in the long term and reduce the time you remain in debt. This consequentially will reduce costs in the long term. Your repayment history will indicate to lenders some form of financial responsibility. This may lead to lower interest rates and options for future loans. However, it is essential to note that specific lenders may charge prepayment fees if you pay off your debts sooner. As with any credit provider, they acquire most of their remuneration from the interest they charge on the loans they offer.
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5. Manage your repayments timely
Paying on time is especially important when it comes to your monthly repayments. The reason is that missed payments may subject you to penalty fees. Be sure to fully understand the terms you have agreed to and the due dates associated with your debt repayments. Mark specific due dates on the calendar if debts need to be repaid. When you stick to your repayment terms, you will avoid additional costs if you fail to honour your repayments. Creditors will also favour those who show a good history of their repayments and possibly offer lower interest rates and beneficial loan options in the future.
6. Build an emergency fund
When you least expect it, life will pass several curve balls, so why not prepare for such events? With additional funds left at the end of each month, don’t deem such amounts as extra funds to squander. Ideally, putting such pieces towards an emergency fund would be best. So what does this have to do with debt management?
Suppose you find yourself in a situation that requires certain costs to be covered quickly. You may very hastily take out a loan to cover such urgent costs. Not only does this add to your debt, but it may cause you to overlook the terms of a loan. With any hasty decision, you make poor choices you otherwise may not have agreed to. These can come from a medical emergency, car, or house repairs that need urgent repairs. By building up a nest egg of funds, you save and guard yourself against taking out a future loan. Doing so will save you money instead of paying interest on an additional loan.
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