4 Simple Ways To Manage Your Debt

Debt is a fact of life for many people of late, especially when it comes to car loans, mortgages and credit cards. The fact that these have become the norm doesn?t mean that your life has to be ruled by debt repayments. Today we look at simple things you can do to manage your debt, and eventually live a debt free life (which I believe should be the aim for all of us).

1. Consider taking personal finance advice: If you find yourself overwhelmed by your debts, it means you probably are living above your means, and have taken on more debt than you can bear. In both cases, it helps to talk to a professional. The advantage of talking to an advisor is that they aren?t clouded by emotion about bad decisions made, and for that reason they are able to give you cold hard advice. If you are really sunk, an advisor could ask you to consider looking into IVA terms, or even disposing some of ?your assets if you have more debt than you can realistically carry. If you are living above your means, he/she will help you look at ways to manage your expenses, something you may not be able to do by yourself because of bad money habits formed over time that may be costing you.

2.?Consolidate your debt

Debt consolidation can only help if you have accounts and loans which are in arrears and you are paying a lot in terms of interest. The point of consolidating this debt is to lower the amount you pay by making several interest costs into one smaller one. It can also greatly reduce the installment you have to pay each month while also getting rid of debt collectors phoning you all the time. Paying off one huge debt could also keep you focused on a goal. When you are consolidating your debts, watch out for debt arrangement fees and other costs of borrowing. Usually if you are borrowing from a bank, they will charge you 1-3% arrangement fees and insurance fees, and these increase your cost of borrowing. Make sure you are not increasing your total interest by consolidating debt

3. To save or to pay off debt?

People tend to have different views on this, with some people advocating for doing both at the same time, and others advising that you pay off your debt fully before saving any money. I believe everyone?s circumstances are different, and this article gives a great way to evaluate whether to save or to pay off debt. In simple steps, you should consider the following:

• Have an emergency fund in place first: It may sound counter intuitive to put money aside while you have debts to pay, but lack of an emergency fund could mean getting into more debt should something unexpected crop up. At the very least, set aside 3 months worth of living expenses.
• Compare the cost of your debt to the income you could earn by saving the money. If the latter is less than the former, you are better off using any extra cash to clear the debt. If saving could earn you more, then make minimum payments for the debt and save the rest.
• If you are expecting extra earnings in the near future, then you can consider doing both because you have a bit more flexibility than someone with a fixed income.
• Finally, consider your financial goals. If your financial goals require that you save more now, then do so.

4. Pay more than the installment

This can be easier said than done and if you have a large installment already, paying more than you owe will seem impossible. You should try where you can, especially with the bigger loans, to pay more even if it means sacrificing a night out at a restaurant to get an extra little bit to pay. I have found it helpful to dedicate every spare cent you get, no matter how little to debt repayment.

Extra payments may not seem like much but paying as little as Kshs 1,000 more every month could go ?a long way to reducing your interest expense, and the repayment period of your debt.

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Source: http://www.rookie-manager.com/personal-finance/4-simple-ways-to-manage-your-debt/

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