5 Simple Tips to Effective Debt Management
Sometimes freeing yourself from debt can seem like an impossible task, however through proper planning debt is manageable. Learning to manage your debts properly will help you with your long term goal of living debt free.
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Quite simply the only way for you to free yourself from debt is to stop accumulating debts. Continuing to use your credit cards and overdrafts will just allow the debt cycle to continue. If you are not accumulating debt even making the minimum monthly repayments will reduce your debt level.
Get rid of all your high interest debt by consolidating it
Having multiple debts with numerous different interest rates can sometimes make debt management seem impossible. Some of your debts could currently have interest rates of 20% or above. One possible solution for this problem is to roll all of your debts into one loan with a single interest rate. This is known as debt consolidation. It is possible to save a lot of money by doing this and lessen your debt burden significantly. It is often very difficult to manage your debt when it is spread amongst:
- Credit cards
- Store Cards
- Payday Loans
- Personal Loans
Often these are all forms of â€˜high' interest debt. By consolidating these debts into a single loan it could be possible to halve your interest liabilities.
Set up a budget
Budgeting is a simple but effective method of debt management. By writing down your income and expenditure you can better control your finances. By budgeting you can control where your money is going and see areas where you can make cutbacks to ensure you can manage your finances. You might be surprised at how much money you waste on unnecessary expenditure, money that is fairly significant over a long term period.
Look for cheaper service providers
Debt management is all about reducing the cost of your debts. There are many areas of your expenditure in which you can find better deals and make bigger savings. Many consumers remain static about their:
- Phone provider
- Internet ISP
- Cable TV
- Health Insurance
- Car Servicing
There are deals in the marketplace that are constantly giving you opportunities to save money. Switching is often cheap and easy and by becoming a wiser consumer you might save a lot of money in the long run.
Don't worry about saving money until your debt is under control
In order to reduce your debt it is important to reduce both the interest and the principal. By consolidating your debt you can reduce the interest rate but how do you reduce the principal?
A good way of doing this is allocating your savings directly to paying off debt. Whilst savings are important, reducing your debt should be your first priority. Once you are debt free then you can focus on wealth accumulation. Savings accounts rarely make over 6% interest and it is likely that the interest on your debt will be higher than your savings interest rate. What that means is that every dollar you earn in interest through savings might be getting lost on interest accruing on your debts. As a consequence, out of control debt could be negating the positive effects of saving.
By allocating part of your savings to eliminating your debt you can begin to focus on eliminating the principal on your debt. Once you are debt free wealth accumulation becomes a significantly easier task.
Call Debt Relief on 1300 781 034 to find out what can be done about your debt.