The majority of us will experience debt at some point in our lives. Whether a short-term loan for a specific purchase or a long-term mortgage, and everything in between. Unfortunately, due to the pressures of modern society and the effects of inflation, the cost-of-living crisis and a volatile economy, more people are experiencing higher levels of debt. It can be easy for this debt to grow and spiral out of control, prompting anxiety and even more serious issues such as debt collection and bankruptcy. Therefore, taking control of your finances and tackling debt early can help you to avoid more serious problems.
With this in mind, what is the best approach to managing debt and maintaining healthy finances?
How Much
Before attempting to make any changes to your approach towards debt, it’s important to identify just how much you owe. Create a list compiling all of your debt, how much is owed, when it’s due, potential interest rates and minimum payments. It may seem like a simple solution but having all of the relevant information in one place can help to improve focus. Of course, in some cases it may be the first time a person realises just how much debt they have and therefore this could act as a wake-up call, prompting change.
Prioritise
When choosing which debt to pay off first, you should prioritise the most expensive. This means loans, credit cards or overdrafts which charge the most interest. The faster you reduce any debt that comes with interest, the less money you will waste. Therefore, you can adapt that list of current debts, creating an order of priority in which you can follow.
More than the Minimum
The majority of repayment plans will include a minimum payment, which must be paid in order to avoid penalties or interest. It can be easy to stick to minimum payments but they’re often a poor approach to reducing debt. Only paying the minimum amount will mean it takes much longer to pay off the remaining debt. Furthermore, as your debt slowly reduces, so will your minimum payment, meaning debt becomes exponentially more difficult to bring down. If and when you can, pay more than the minimum amount and your debt will fall much faster.
Balance Transfer
One of the major issues affecting debt and the ability to repay it, is interest. Added interest can make it much more difficult to reduce overall debt, leading to even more interest and the spiral continues. It’s for this reason that many people choose to take advantage of a 0% balance transfer credit cards. Those who are eligible for this type of credit card can use it to reduce their debt quicker and more efficiently. After transferring your debt, you have a specific amount of time, usually multiple years, of 0% interest. This means that payments made within this time will be applied to the debt alone and therefore not wasted on interest.
Consolidate
Those who have a lot of debt often find that it’s spread over different sources, whether that be credit cards, overdraft facilities, long or short-term loans, etc. This can lead to higher repayments, higher interest and a situation in which debt begins to spiral. In situations like these, debt consolidation can make a huge difference. As the name suggests, consolidation involves the bringing together of all of your debt in to one place. This reduces overall interest and monthly repayments, making debt much more manageable.
Ask for Help
If you find that you’re struggling with a specific payment, contact the lender. In the current climate, many people are struggling with debt and lenders know this. In the majority of cases, a quick chat with the bank, credit card company or business should help to alleviate some stress. You should explain your circumstances and they may offer a solution. Whether that be a payment holiday, a reduction in the minimum payment, interest only payments or even just some advice.
Dealing with debt can be stressful and confusing, however with a change of approach, you can completely transform your relationship with debt. There’s also help available for anyone who may be struggling.
For those working in the delivery sector, U-Deliver offer expert financial advice and services, covering everything from taxes to debt repayment.
