Manage money and reduce debt
If you have started looking for ways of managing your debt with the goal to eliminate all or most of it, then you are taking the right steps. When you get started with this process, you need to keep in mind that some debt is not bad – a mortgage can be a great tool to use in achieving your goal of owning a home and building your wealth when it appreciates in value. Having too much debt, especially high-interest credit card debt can mess you up and make it harder for you to reach your financial goals.
If you are looking to effectively manage your debt, you need a debt management plan. Find out more in this article: What is a debt management plan?
Below are seven steps you need to consider.
1. Taking account of your accounts
Note down all the debts you have. Make sure you include the interest rate on each of them so you can know which ones are causing the most harm.
2. Checking your credit report
You can get a free copy of your credit report from the three credit-reporting agencies. Request for your free credit report because it is going to help you manage your finances. With a credit report, you will ensure you haven’t forgotten about outstanding debts. It is also important to look at the report because you can easily spot any accounts you don’t recognize. If you want to know your credit score, ask your credit card company or bank whether they can give you your score at no cost.
3. Looking for opportunities to consolidate
If you have many high-interest loans, there are times when it is possible to consolidate all of them into one loan that has a lower interest rate. Find out whether you have a low-interest personal loan you qualify for. Take this loan then use it to pay off high-interest credit card balances. Before you consolidate or refinance any student loans, review your eligibility for federal loan forgiveness programs which may be impacted by loan refinancing or consolidation.
4. Being honest about your spending
If you are overwhelmed by your debt, it is a good idea to have an honest look at what you are spending money on each month. Are there expenses you can eliminate or cut back on? If you want to reduce your debt, limit the additional debt you take on.
5. Determining the amount you have to pay
When you are done consolidating your debt, determine how much you have to pay every month by looking at the minimum payments then adding the total to your budget. If this amount is more than you can manage, it might be a good idea to talk to lenders to arrange different terms.
6. Figuring out how much extra you can budget
Once you know how much you have to pay every month, determine how much extra from your budget can you use to reduce debt. If you succeed in reducing your expenses, you can use the money saved to pay down your debts.
7. Determining your debt-reduction strategy
How you are going to deal with the debt will be up to you. The two most common strategies used are paying off balances with the highest interest rates first and paying off the lowest balances first. You are going to save more money in the long run by using the former, but the latter will keep the momentum because you see progress. You are taking steps in the right direction, either way, stick to your plan!