Debt can be a real challenge to manage, no matter the type or amount owed. They are called liabilities in personal finance, but a more accurate term for debt is a financial burden. The typical kinds of debt usually includes credit cards, personal loans, or mortgages, all of which are often a necessity. Debt is part of our daily lives and part of our personal financial growth when managed over time. Dealing with debt may feel like an uphill battle, but if you manage your debt efficiently, you can reduce the stress of owing debt while also saving a bit of money.
Multiple Financing Sources
There is a multitude of financing options available to you. Do not make the mistake of taking the first deal that is offered when you are looking for a solution to pay off debt. This is especially true if you’re refinancing or consolidating a credit card or a loan. It’s worth the extra time and effort to shop around for the best deal available to you.
Regardless of the kind of debt you’re dealing with, finding the best rates and repayment terms could potentially save you thousands in the long run. If you think you can find a more ideal financing option, step away from the decision until you’ve considered all of your options. You can always go back later if you’re unable to find other options.
Manage Your Bank Account
If you find yourself in a situation where you have a little bit more money at the end of the month, you may want to consider building an emergency fund. Most of us need something to fall back on. Uncontrollable events in our lives can end up costing a fortune if we don’t have a backup of savings.
Make sure you have some money set aside in case you have a financial need that rears its head unexpectedly. If you find yourself in a position where you don’t have enough cash for a trip to the hospital, you’ll need to reevaluate your spending patterns and contribute more to your emergency fund. This tactic requires some proactive choices, but it can make all the difference toward not being in debt in the future.
Organize Your Finances
Prepare and plan to make regularly scheduled payments towards your debt. Don’t wait a day or two before to see how much you owe on your credit card. Track your spending weekly and ensure you have enough funds to pay off your debts when the due date comes.
You should also try to predict your financial position in the following month. Thinking about taking that expensive trip to Europe? Make sure you’ll have enough cash at the end of the month for your debt obligations first. Missing a payment due date could result in fees or added costs in accumulated interest. Moreover, it could negatively impact your credit score.
Diversify your own investments
Diversifying your debt financing sources is important, but so too is diversifying your investments. If you have extra cash available at the end of the month, should you use it to pay off more of your debt or invest in something more lucrative? If you’re paying off your loan on time and in full, it may be a better idea to start saving for a longer-term goal like retirement. A 401k, traditional IRA, or a Roth IRA can be a strategic way to save and invest money for the long term.
If you’re paying off a loan at a 5% interest rate, but you have extra cash available at the end of the month, an IRA account invested wisely in the stock market could yield a return much higher than 5%. Be sure you have a plan for getting out of debt before diving into investments, though, and seek out professional advice if you’re not sure where to begin.
