Mortgages, personal loans, car loans and credit cards are some of the most common types of debt. Since the application process is now so easy and approval rates are high, taking on debt has become increasingly common and convenient. In fact, household debt is one of the highest in the world. In an environment where retailers are increasingly making paying for products and services easier, having the ability to be approved for financing can be problematic if you fail to manage your repayments.
Snowballing debt can have a huge impact on your future financial goals in a number of ways. First of all, it ties up extra household income, forcing many people to consider a cheap iva, or otherwise a debt consolidation loan. If your credit report is affected, it can quickly derail any hopes of purchasing property or making other large purchases down the line. Even with overwhelming debt, setting a repayment plan in place to whittle down multiple debts is definitely possible with the right approach.
Continue reading to learn how you can better manage repaying your loans before they get out of control.
The first thing you should do when trying to manage multiple debts is to take inventory of where you are at financially. More than just creating a budget that focuses on debt repayment, you should also examine your present spending habits and future financial goals. Part of this examination will involve assessing how much money you spend every month and on what type of purchases. The purpose of this exercise is to identify and minimize excessive spending and to create a debt consolidation plan.
Keep Your Receipts
One of the best ways to take inventory of your spending is to keep your receipts. While it might seem like a hassle, your receipts serve as a written record of your monthly expenses. Everything that you purchase including food, fuel, entertainment, clothing, and other necessities can easily be recorded. Keep your receipts and then itemise your expenses at the end of the month or try using a budgeting app to keep everything in order. Include this itemised list of purchases in your budget to get a better idea of how much you are actually spending every month.
Trim The Excess
When you have an itemised list of your expenses you know what your monthly budget looks like, you should look for areas that you can cut back on. Whether it means reducing the number of times you dine out or cutting back on your clothing allowance, taking a few minutes every month to trim the excess from your budget can save a lot of money over time. And, if you are dealing with multiple debts, these extra savings can be added to the principal balance of one or more of your debts to reduce what you owe faster. When each debt is paid, apply the extra money that you were paying off to the others to reduce those balances quickly.
If your debt situation is very serious, consider seeking financial advice as you might need to file for chapter 13 bankruptcy. A financial counsellor can provide you with sound advice on how to approach repaying multiple debts effectively. Sometimes, it is better to get advice from an objective, third party that has experience in debt management rather than trying to deal with overwhelming debt on your own.
Consider Consolidation or Refinancing
Combining your debts through a consolidation loan is another way to simplify a debt repayment plan. One of the primary benefits of a debt consolidation loan is that it reduces the amount of money paid out every month in interest simply because all of your debts are combined into one sum yielding one overall charge. Also, a good consolidation loan might come with a facility for financial counselling, so borrowers can avoid the habits that created excessive debt again in the future. A refinance such as a home refinance loan can also be beneficial to help you budget more effectively. For example, companies such as SoFi can refinance student loans, helping those who have a large monthly repayment to reduce it and have more money for living expenses.
Effective Financial Management
The best financial plan should include a budget that accounts for each purchase that you make every month. Being aware of your expenses makes it possible for you to be aware of how much money you have available to pay off your outstanding debts. This information is crucial in addressing behaviours that might interfere with you becoming debt-free and will help you to manage your repayments and move towards a debt-free future.