How to Manage Your Debt


Accumulating debt can put enormous strain on you and your family. Even if you don't realize your real situation, you need to adopt certain measures in order to manage your debt before it gets out of control. The best thing to do is to take action before your debt accumulates so much or you will face the event of bankruptcy.


The following are useful tips on how to manage your debt.


1. Create a budget

An accurate budget can provide you with a financial direction on how to spend your money wisely and in a controlled way. By creating a budget you can see the real picture of your financial situation, compare your income and expenses and find a balance that can guarantee a more stable financial future. Make sure to include all sources of income as well as fixed and variable expenses to have a realistic budget that can serve your spending needs.


2. Prioritize your debt

You may have all sorts of debts, including mortgages, car loans, personal loans, credit card debt and so on. Most people prioritize on credit card debt in order to capitalize on lower interest rate as their balance gets lower. Also, you may choose to pay off the debt with the lowest outstanding balance to free yourself from multiple lower payments, which nevertheless put a strain on you every month.


3. Pay your bills in due time

Often, your debt skyrockets as a result of late payments on your bills, which lead to high interest rates and bank charges. The best case scenario is to pay your bills on time. If you cannot afford to do so, the next best thing would be to at least make your smaller payments. Even if this doesn't help in making any real progress in paying off your debt, it keeps you from defaulting on it. If you miss your payments out of negligence, set alerts on your computer or phone to inform you one day before the due date.


4. Pay more than the minimum credit

You are used to make minimum payments on your credit card thinking that the money goes wasted because you don't see any immediate savings. However, what you should know is that most credit card minimums range between 1% and 5% of the outstanding balance, which means that with an average of 18.9% interest on the credit card balance, you pay nothing towards lowering your balance. By paying more than the minimum credit and provided you stop using your credit card, you will get out of your credit card debt over a shorter period of time. However, it takes a lot of discipline.


5. Set up an emergency fund

Most people liquidate their 401k or overcharge their credit card when they face a financial emergency. Although the 401k is a retirement plan, the government allows borrowing but you are charged with high taxes and penalties. Similarly, by charging your credit card every time you face unexpected expenses you enter a never-ending spiral of charges that only leads to higher interest or even bankruptcy. With an emergency fund – provided you first cover for all fixed expenses and you pay yourself – you know there is a cushion where you can withdraw money from.


In short, debt comes in all shapes and sizes. If you don't take action early, things may get out of control until bankruptcy becomes your only option. Therefore, before the problem becomes extreme and unsolvable, make sure to understand the wrong signs and manage your debt to save yourself from financial distress in the future.