Unfortunately, debt is a simple fact of life. However, this doesn’t mean that financial obligations should become a burden. In the modern age, singles and families should be able to buy the things they need in order to live comfortably.
Instead of letting these charges cast a shadow over big purchases like new cars or homes, learn how to manage the reality of owing money. This way, you can enjoy the finer things in life while also staying on top of your finances.
The 5 steps of debt management
Sometimes, there is no worse feeling than knowing you owe funds to different people and institutions. In fact, having outstanding costs can make you feel stressed and overwhelmed.
So, in order to enjoy life and the purchases you have gotten into debt for, you need to work out how to manage your finances. Whether it’s creating a budget, better controlling mortgage payments, or developing a rainy day savings buffer, there are things you can do to effectively manage financial obligations.
1. Understand what you owe
Effectively managing debts starts with getting a clear picture of what you owe. In order to do this, make a list of how much each charge is and the minimum monthly payment.
This list should include credit cards, loan repayments, any unpaid bills or other expenses such as parking fines.
Finally, add up these amounts in order to see the total amount. Knowing how much you are in the red can be confronting, however, it truly is the first step in taking charge of your money.
2. Document what you can afford to pay
The next step in the process involves working out how much you can afford to pay towards managing the charges each week or month.
Start by creating a budget in order to compare the money that is coming in and going out. Detail incomes and benefits and outlays such as food and retail shopping, rent or mortgages, credit cards, phone bills, and transport.
If you find that more cash is going out than coming in, there may be a problem. In order to achieve balance, think about the things you can’t do without (needs) and the things you could do without (wants). However, don’t make your new budget impossible to stick to.
3. Prioritize your debts
There are such things as high-priority debts. These include rent or mortgage payments, council rates, and body corporate fees, electricity, gas and water bills, and car repayments.
Lower priority payments include internet and phone accounts and credit cards. These are classed as low priority as you can request hardship if you need help.
The process of prioritization will also afford you the opportunity to look into the repayment process. For example, you may be better off switching to lower interest rates, a fortnightly payment, or paying all the fees and charges upfront on your mortgage.
4. Institute a savings buffer
After paying outstanding accounts and putting food on the table, you may find that you have funds leftover. Instead of going out and buying treats such as new clothes or electronics, save the cash.
This way, you will have an emergency fund that doubles as a safety net if the worst happens and you need to cover instances like loss of income or unexpected costs without getting into more debt.
5. Ask for help, if needed
When it comes to managing an outstanding payment or other financial obligations, there is never any shame in asking for help.
If ever you feel overwhelmed or overstretched, there are people to talk to. For example, finance counselors can detail and explain your options and help you make a plan.
Get back on track
Big purchases like houses and cars should be reasons to celebrate. At the end of the day, they’re the biggest purchases you’ll ever make. However, these purchases can also send people into a cycle of crippling monetary hardship that becomes hard to break free from.
Be aware that in these fast-paced times, you must have all available information; who knows what can happen tomorrow, therefore check Spar & Bernstein Law Offices for any legal needs.
Instead of letting costs run your life, take the time to understand your monetary standing and the necessary repayments you must make. By understanding when funds are coming and going and how to prioritize them, you can consider your debt effectively managed.
