If you want to manage your finances better for the coming new year, it pays to look up debt monitoring tips as early as now.
One reason for this is the fact that debt can either push you closer to your goals or further away from them. Business Insider even shares that millions of Americans are having a challenging time paying off their debts. If this is your current situation, this is one indicator that you might not be handling your finances the way you should be.
You have to understand that debt is not always a bad thing. There are times where borrowing money can help you reach your goals. Take your student loans for example where you can use the money to help you pay for school. You can choose not to take out student loans but it could mean you will not go on to get a college education.
You might think this is easier since you do not incur a huge debt you have to repay. But if you think about it, higher education can open up bigger and better possibilities for you. APLU shares that a college degree significantly improves employment options compared to people with a high school degree. The task now is debt monitoring and making sure you pay back what you owe.
This is normally what happens with a lot of people, the payment is where they start to struggle. Once that happens, debt payments become a huge burden. If this is happening to you, it begins to take over your finances. You might find yourself trying to make ends meet with all the payment obligations you have to meet.
Debt Monitoring Tips
One strategy that can help you with your finances is monitoring your debt payments. Here are a few things to look into to help you do this more efficiently.
List and track how much you owe
Effective monitoring starts with a list. You might be able to pull off trying to mentally remember everything if you only have a very few payments. But as you add more over the years, you could end up missing some items. This will put you in a difficult situation especially if you forgot about a payment you have to make.
Remember that for each debt payment, you will have different sets of information to take note of. The balance from each could be different which will make your monthly payment vary from one lender to another. Your interest rate is another factor you have to consider. More importantly, your due dates are also very important.
This is the reason why you need to have a list so you can easily keep track of all your payments. You can also consider debt consolidation. This repayment strategy can make debt monitoring easier. You only have to oversee one account with all your payments under it. There are even instances where you could be paying a lower amount each month if you consolidate over a longer period of time.
Decide which debts to pay off first
Now that you have a list, you can easily choose which ones to pay off first. You can opt to pay down the accounts with the smallest balance first or focus on those with the highest interest rate. This strategy of identifying payments to focus on helps make debt monitoring a lot easier. Having this strategy makes it easier for you to identify what you need to do every month.
Choosing to pay off the accounts with the highest interest first gives you the chance to save money in the long run. Rather than pay interest a lot longer, you save that money if you pay off the account faster. On the other hand, choosing to focus on the smallest balance first gives you mental wins. It could help you gain the confidence to take on bigger debt payments next.
Calendar all due dates and payment schedules
Debt monitoring is also simpler when you incorporate them into your calendar. This can be a physical calendar you have on your desk or a digital one on your smartphone or computer. The idea is the same, you need to remind yourself of the payments you need to make. This payment reminder can be a great way to keep you from spending on unnecessary items.
It can be a good idea to set the reminder a few days early. This way, you have some allowance to send the payment to your lender. If you are doing everything manually, this gives you enough time to log in to your financial accounts and make the payment. If you physically go to your lenders to make the payment, having a few days allowance before the due date can be a big help.
If you choose to send payments automatically through auto-debit arrangements with your lender, being informed ahead of time can prevent problems. One, in particular, is overlooking your balance in your account. You might not have enough in your account to cover your payments. If you have a few days before they automatically send out, you still have the chance to move your money around to make sure you make your payments.
Create and implement payment strategies
As mentioned earlier, it is important to have a repayment strategy for your debt payments. But you have to remember that it is not enough that you decide on a strategy. You need to follow through and stick to it. Otherwise, it will not be of much use for you. You can think and create strategies all you want but unless you act on it, your finances will not improve.
This is similar to your household budget where you have to come up with a list of your income and expenses. This then gives you a better idea of how to allocate your funds accordingly. But if you do not follow your budget and you still spend the way you want to, your budget is useless. The same goes for your repayment strategy. You could have a great strategy but if you do not follow it, it will not do anything to help your finances.
Lack of debt monitoring can lead to big problems
Now that you have an idea of how you can monitor your debt more efficiently, you also need to know the consequences if you choose to ignore them. Here are a few of the things that could happen.
Huge debt amount
If you do not make it a habit to monitor your debt payments, you run the risk of incurring huge debt amounts later on. You might not know it but you could already be deep in the red. If you are not regularly monitoring your debt accounts, your lender could already be putting in fees and penalties on your payments for missing a lot of your payment due dates.
It is stressful when you start to get collection calls at home. This simply means that your lender already sold your account to a collection agency. This agency will now try and collect the full amount immediately. This could put you at a disadvantage especially if you do not have an idea where you will get the money to cover the full payment.
Low credit score
When you start to miss your payments, your credit score will also be negatively affected. Remember that your payment history plays a big part in how credit reporting bureaus compute for your credit score. It might not seem to be a priority at present but when the time comes that you have to take out loans, your credit score will be a big factor. It helps lenders choose whether to approve your loan or even decide on the interest rate to give you.
There are a lot of debt monitoring ideas you can use to help you take better control of your finances and payments. Once you do, you can improve your chances of using your finances better in reaching your goals in life.