6 Most Effective Debt Management Tips

Don’t you just love spending money? Even when you don’t plan to, going out can tempt you into shopping and getting stuff that you hadn’t intended to buy. Credit cards have made it way easier for us to shop whenever the urge strikes and this is how you end up accumulating debt. Getting out of debt seems almost impossible as you can’t help yourself from spending more and more. Soon enough, you have a pile of debt with very high interest and you are becoming frantic as you realize it might not be possible for you to pay it off. This is not the time for you to panic; it is time for you to learn the art of debt management.

Managing your debt will aid you in stabilizing your financial situation, which will allow you to have cash at the end of the month that can be saved for used for paying off debts. If you want to get rid of your debt and improve your financial situation, here are some of the effective debt management tips you should follow:

1. Begin Budgeting

Do you spend what you earn? There are lots of people out there who have absolutely no idea how much money they spend and what they are spending it on. This is a mistake. Budgeting can turn out to be a useful tool as it helps you in knowing exactly where your money is going. It also allows you to prioritize where you should be spending your money and cut out the unnecessary expenses. With budgeting, you are able to manage your debt in a much better way.

2. Pay your bills instantly

This is also an important part of budgeting. Everyone has different ways of paying their bills; you might be one of those who pay their bills on their due date or you may even pay late. Bear in mind that late payment of your bills means you have to pay a little extra and may also have a negative impact on your credit ratings. Deferring payment of bills is a costly and bad habit and one you need to eliminate if you wish to save money and reduce your debt. You will be able to manage your money better and know how much disposable income you have.

3. Consider your debt as a whole sum

How do you view your debt? Most of us think of our debt in pieces rather than considering it as a whole. This isn't a good strategy because you will believe that you have low debt levels as you are thinking of debt separately like a couple of credit cards and a small personal loan. However, when put together, your total debt can turn out to be an outstanding sum. Furthermore, taking out another credit card when you have maxed out one is not a solution as you also have to pay interest on it. It is essential for you to look at the big picture because that's how you will be able to manage your debt.

4. Get rid of high interest debt

Which debt vehicles do you use? Some use credit cards and personal loans while others may also go for overdrafts. The level of interest on your debt can vary, depending on the type of debt you have. An important tip for debt management is to get rid of debts that have a high rate of interest. This doesn't mean that you throw out your credit cards completely. Instead, you need to shop for better products in the market. Rather than opting for a credit card that charges 25% interest, find one that has a 10% interest rate. It is also an option for you to replace a debt charging high interest rate with one that has a low rate of interest. For instance, you can pay off your credit card that has a high rate of interest by taking out a small loan with a low rate of interest.

5. Set up automatic payments greater than minimum amounts

You realize that you have accumulated a lot of debt. What do you do? You start making the minimum payments and assure yourself that you will be able to get rid of the mounting debt in this way. This is definitely not true because minimum payments will not reduce your debt in a substantial way. You have to pay more than the minimum amount if you wish to make a dent in your debt, reduce interest and manage your finances better.

In addition, it is better for you to just set up direct debit payments from your account. There are numerous benefits of doing so. First, you will not be tempted to spend the money on something else. Secondly, the payments will be sent out regularly and there will be no worry about you forgetting it. Also, you should work on increasing the frequency of your payments in order to cut down your debt faster.

6. Explore the option of IVA

Another useful and effective tip for debt management is to sign an Individual Voluntary (IVA) agreement. This is a legal contract between you and your creditors that enable you to restructure your debt into manageable and affordable payments. An IVA agreement usually lasts for five years and by its end, your debt will probably be repaid so you will have your freedom.

One of the greatest benefits of signing this agreement is that you don't have to fret about spiraling interest charges. This is due to the fact that entering an IVA freezes your interest and charges so your debt will not increase. With this solution for debt management, you are able to avoid filing for bankruptcy and your creditors are also unable to take legal action against you. Essentially, it gives you time to restructure your finances and pay off your debts easily.

These six debt management tips are highly effective and can help you in getting rid of your financial obligations without going crazy.