Debt management is relatively simple yet isn’t easy to accomplish. Getting out of debt is one of the most common financial struggles people face. Poor debt management strategies, lack of adequate financial knowledge, and lack of discipline are some of the reasons why people fall into the debt trap. It takes a good debt management plan and discipline to effectively eliminate and manage debt. With a good plan and discipline, you can gradually lower and eventually get rid of your debt without jeopardizing your budget or resort to more debts. Here are steps on how to strategically manage your debt.
1.) Identify the details of your debt. Identifying your debt and its details is very important. You need to know where to start before you draft out a plan. Think about the reasons why you ended up with such debt. Did you really need to resort to such debt? Did you not have any other options to consider? Knowing the psychology behind the debt is very important because you can use this to discipline yourself later on. In settling your debt, what are the payment policies? Are their other payment options that can be applied or considered? If you know different ways on how to pay off your debt, you can pick the best way on how to pay it off.
2.) Classify your debt according to urgency. After you have identified all your debt, it’s time to classify them. All debt are urgent and must be paid the soonest. However, there are debts that are more urgent than others. Debts such as loans with your house or other properties as a collateral, promissory notes on schools, hospital bills, utility bills, credit card bills, and loans that have high interest rates must be given the utmost priority. Ideally, everything should be paid off immediately but if you are in a tight situation financially and still can’t settle everything in an instant, approach those who are concerned and agree on a particular settlement mode. Institutions normally give a grace period for debtors to settle their debt provided that they comply with the agreement. Just show them your sincerity in paying your debt.
3.) Draft a plan according to the options that you have. Now that you either have alloted cash to pay off some debts and have come up with agreements on how to settle your other debts, make the best plan with everything that you’ve got. Keep in mind that though getting rid of your debt is one of your utmost priorities, you still have other financial obligations thus you must keep some and avoid putting it all in paying your debt. Create a budget, follow it, and stick to it. Increasing your earnings is a great idea too. Just a word of caution, never think about borrowing money in order to settle your debt. Many people resort to debt in paying off their other debts putting them further down the debt hole.
4.) Increase your financial IQ and let debt work to your advantage. Poor financial knowledge results to financial disasters. If you increase your financial IQ, you can be in more control of your finances, spot financial opportunities, and even take advantage of debt to make more money. Not all debt are bad. In fact, most of the very successful businessmen and rich people resorted to debt which gave them millions or even billions in return. Everything boils down to proper money management. Debt such as loans that are being used in businesses, investments, and other assets are good debts while debt that are mismanaged or used for recreational purposes or spent on liabilities are bad debt and these are the kind of debt that you should avoid. If you increase your financial IQ, rest assured that you can make debt work to you advantage.
5.) Continue to work until debt has been eliminated. Don’t be complacent and celebrate prematurely once you have lowered your debt. Make totally eliminating your debt your goal. Stick to your plan until you have fully settled everything. Complacency will lead you back to your old ways thus instead of getting rid of your debt, you may once again resort to debt thinking that you only have a little more left to settle. Discipline is everything in financial and debt management and if you can’t stick to your plan, you can never achieve your goals and attain financial independence, debt elimination, and peace of mind.
6.) Never consider bad debt as an option. Bad debt comes in a lot of forms but they serve no good purpose. Some examples of bad debts are loans for vacation, gadgets, luxury, entertainment, recreation, or anything that is spent on liabilities or anything that won’t bring money to your pocket. Another very common form of bad debt is to pay off an existing debt with another debt. Ridiculous as it may seem but a lot of people do that. These people only have on solution in mind: debt. Instead of thinking debt as an option, think of different ways to find a payment. Bad debt will always be bad.
7.) Prevention is always better than cure, be safe than sorry. A good plan leads to good results, lack of or poor planning leads to disastrous results. A good financial plan prevents you from getting into the debt hole. Establish your financial nest gradually and anticipate that hard times are yet to come. You’ll never know when will you really need money thus you should save while you still don’t need much of it rather than enjoying every cent that you have. Prevent yourself from getting into debt by saving. Once you have successfully settled all your debt, focus your attention and efforts to saving and avoid the same mistakes that you have made before financially.