Debt is an unfortunate reality of the modern world; dealing with it can be difficult, whether your debt is a student loan or a short-term payment. In fact, studies have found that worries about money are such a burden that they actually impact your intelligence by reducing your IQ points by ten. Dealing with debt can be difficult, but it is by no means impossible. Learning the best techniques and strategies to better manage your debt will help you to reduce stress and reduce your financial burden.
Work Out How Much You Owe
The first step to managing your debt is to work out how much you owe. This can be a very difficult step, as having to face up to the reality of your situation can be very intimidating. However, it is vital that you take the time to work out exactly how much money you owe to ensure you are able to make the very best plan going forward.
You should make a complete list of all of your debts to work out the total amount of debt, including all monthly payments, interest rates, and due dates of loans. Writing down all the money you owe and the details of all repayments will allow you to see the bigger picture accurately. If you struggle with this step, then you should ask for help, either from a trusted friend, family member, or a qualified financial advisor.
Create a Debt to Income Ratio
After you have ascertained how much money you owe, you are then ready to make a debt to income ratio. Working out this ratio will allow you to work out how much of your income you can spend on your debt repayments.
Decide Which Debt to Pay Off First
Not only will you need to work out how much you owe, but you will also need to rank the debts you have to better understand which debts you should pay off first. You should rank your debts in order of interest rate, as you will need to repay the loans with the highest interest rate first.
If you are particularly worried and intimidated about the prospect of repaying your debts, you could also choose to pay off the smallest debt first. While this might end up costing you a little bit more in the long run, it can boost your confidence, which will empower you when it comes to making future repayments.
Meet Your Monthly Bills
It can be difficult to work out which payments you should be focusing on each month. Using a bill payment calendar to work out when payments are due and which paychecks you should be using to repay each monthly fee is useful. Meeting your monthly bills is an important step to rebuilding your credit score and avoiding incurring any more debt, so this step should not be ignored.
Meeting the Right Payments
In addition to paying your monthly bills, you will also need to make sure you are making the minimum repayments. While meeting your minimum repayments will not work as a means of clearing your debt, it will help you avoid incurring more debt from late fees, which make it more difficult to pay off your loan.