Repaying debt can be difficult during a pandemic when certain streams of income have been interrupted. However, effective debt management is not just about getting rid of all your loans; it is a long term financial planning process, which should ultimately leave you with more control over your money and give you the freedom to save, invest and spend it as you will. So how do you go about it? Here are a few tips:
Make a Repayment Plan
The first step is to understand how much you owe and make a repayment plan. Make a list of all your debts, when repayments are due and the interest for each. Add a column of expected income, which can be allocated to repaying.
Put a Moratorium on Borrowing
If your debt is becoming unmanageable, you need to halt all borrowing until you have a plan for clearing it. You don’t want to get to a point where you are taking one loan to repay another. Not only is this unwise, but it may also actually inflate your debt because of the additional borrowing charges. Additionally, cut your spending to only cover the essentials so that you have more for clearing debts.
Consolidate your Debt
Reduce the number of lenders you have by consolidating as much of your debt as possible. Owing just one individual or institution puts you in a better position to negotiate repayment terms. On top of that, you may benefit from a lower interest rate. It also simplifies the entire process, reducing the chances of missing a payment.
The loans attracting the highest interest or those with harsh penalties for missed payments should be at the top of your list. Use your list to help you prioritize them accordingly. You can also consider clearing low balance loans first because this will allow you to reduce
Renegotiating repayment terms is a good way to ease your burden, especially for larger debt. Many financial institutions are willing to restructure your loan if you find yourself unable to repay as planned. Meet with your loan officer and agree on a schedule that suits both your needs.
Ultimately, debt management is about restoring your financial freedom. Incurring debt is sometimes necessary. However, left unchecked, borrowing can limit your ability to spend, save or invest money you earn now or in the future. Managing your debt effectively will help you to avoid this.
Get in touch with our Financial Advisors on email@example.com for insights on how you can manage your debt.