Seven valuable tips to help you take control of your debts
It doesn’t matter how careful you are; sometimes, life will force you into taking measures you wouldn’t normally go for under normal circumstances. These measures can be extreme, such as taking a loan to deal with a medical emergency, but they can also be milder in the form of a car loan or a leisure loan. While this has its perks, it can also come with many disadvantages if you’re not careful. Failing to make timely payments or borrowing from the wrong creditor can quickly turn your life upside down. So, whatever is your reason, here are seven helpful tips to help you take control of your debts.
Get lower interest rates
The most troubling part about taking a loan is the extra payments you make due to the interests. Loans with high-interest rates can be financially draining, resulting in you paying what you’ve borrowed multifold. The smartest thing to do is look for loans with low-interest rates, but if you’re already stuck in debt, then you should look for ways to decrease the current interest.
You’ll be surprised to know that there are many ways to decrease the current interest rates on your debt. Professional debt advisors explain on https://www.scottishtrustdeed.co.uk/apply-for-an-iva/ that the process of getting an IVA, or an Individual Voluntary Arrangement, one of the popular debt management tools in the UK, is simpler than it looks. This is where the person in debt and their creditors come to a legal agreement for repaying remaining debts in a loan. An insolvency practitioner plays the role of an intermediary between both parties, serving to ensure the creditors of their debt repayment in return for freezing the interests. Similar to IVA, trust deeds are the Scottish version of debt management. Consolidating debts into one larger debt with lower interest rates is also another option.
Plan your budget carefully
Even if you’re not good with numbers, there’s nothing like being in debt to motivate you into creating a good financial plan for yourself. The whole idea of managing your finances should be to create a durable living style by carefully calculating your income and allocating it properly. Some professionals recommend using the 50/30/20 rule: you allocate 50% of your income for essential expenses, 30% for your personal wants, and 20% goes into repaying your debts.
However, merely dividing your income won’t be enough in your situation. It’s important to understand that the sooner you pay off your debt, the sooner you’ll get back your life. Meanwhile, you should make adequate modifications in your living standards to maximise the amount of your debt you’re able to pay off. If you’re following the 50/30/20 rule, for instance, looking for less expensive alternatives in your 50% can be a smart place to start.
Make more money
Making more money can be done in two ways: minimising expenses and, well, making more money. So, in addition to limiting the costs you endure throughout the month, looking for money making hobbies, part-time jobs, and side hustles will provide you with additional cash that you can utilise in repaying your debts.
Try making extra payments
After maximising the capacity of your income by limiting expenses and making more money, the best thing you can do is to get rid of the debt faster. That can be done by making extra payments or negotiating the loan terms with your creditors, but that might not always be possible. Some loan terms place penalties on early payments, so you should first make sure to prevent this approach from backfiring on you.
Use the snowball method
In the case of having multiple debts, your financial and emotional situation can be more severe. In such cases, the snowball method can be useful. You start by designating a part of your regular income into paying off the largest debt; meanwhile, you allocate your savings into repaying the smallest one, and then the next in line. This will give you a sense of achievement and a strategic approach to getting rid of your debts in due time.
Avoid making mistakes
Being in debt can be overwhelming, which can force you into acting irrationally and making grave mistakes. For instance, you can indulge in impulse purchasing or luxurious hobbies to escape the situation or panic and borrow another loan to repay the current one. Instead, you should focus on confronting your debts strategically and rationally.
Being in debt can be overwhelming. Instead of panicking or turning to escapism, the wisest thing to do is to take control of your debts. You can do so by lowering the interest rate, financial planning, limiting expenses, making more money and having a reliable strategy.
The editorial unit
The material contained in this article is of the nature of general comment only and does not give advice on any particular matter. Recipients should not act on the basis of this article’s information without taking appropriate professional advice