As the new year starts, there are a number of debt management tips you can look into to help you get ahead with your finances. The new year is a great opportunity to lay out resolutions that are meant to help you make the most out of the year. It might just be a little challenging at the beginning especially if you have other goals in mind.
When you talk about new year’s resolutions, there are a number of items people put on the list. Apart from health goals such as losing weight or even bulking up, some people also want to invest in themselves. They do this by taking up classes to hone existing skills or even find a new skill to develop as they go out of their comfort zones.
In all these, money will always play a significant role. It may be financing a new course you want to take or even buying gadgets or equipment for a hobby you want to pursue. Even with those health and fitness goals, it will entail a considerable portion of your budget as you spend on healthier types of food and even enrolling in the gym.
These make debt management tips all the more important as you endeavor to make a great start for the year. It will benefit your budget and help you reach your new goals for the year. This is especially helpful as USA Today shares that American households have an average debt of over $137.000. Here are a few things to look into as you try and manage your debt payments for the new year.
List down all your debt payments
The first thing you need to do when you want to tackle your debt payments is to have a clear idea of what your obligations are at the moment. To do this, you need to make a list of all your debt and financial obligations. Start from the ones that are in your household budget. Most, if not all your debt payments should be there. If there are other debt payments that are not included in your budget, you need to include them in your list. It would be hard to tackle your debt payments when you do not have all the data that you need.
Check what you are paying for principal and interest
The next step after you get the list down is to look at the breakdown of your payments. This is one of the debt management tips that a lot of people overlook. The reason to look at the breakdown is to understand how much you are paying in interest payment. There is nothing you can do with the principal payment but there are ways to manage the interest payment.
By looking at the interest rate, you can arrange your list from the ones that are charging you the most to the least. It would not be a surprise when you find out that the highest interest rates belong to unsecured debts such as credit cards or even payday loans. The lowest ones could be coming from secured loans such as your mortgage or your car loan.
The reason for this is that unsecured loans such as your credit cards are seen by lenders as a risky endeavor. However, secured loans much like your car loan or mortgage are safer because there is a collateral involved. If you are not able to meet our payment obligations, the lender can seize the asset and sell it to recoup losses.
Figure out how you can manage your debt payments better
When you talk about debt management tips, the bulk of it would need to revolve around making your payments a lot more manageable and efficient. Once you have a crystal clear idea what your debt payments are and the interest you are paying for them, you can now start to look at debt relief options available out there.
One of the most preferred options is debt consolidation. This gives you the ability to manage your payments better. For one, you get to focus on a few payment details. Imagine if you have five credit cards, it would be a nightmare as you try to get a hold of all your payment details on a monthly basis. Debt consolidation helps you combine all those into one account.
It is also possible that you get to end up with a lower monthly payment when you consolidate your debts. For one, your credit score could have improved over the years. Lenders tend to give out lower interest rates for high credit scores. Another is that if you are stretching out your payment over a long period of time, you can end up with low monthly payments. You just have to remember that you end up paying more in the end.
What you are doing wrong
These debt management tips can help you address your current financial challenges at the beginning of the year. However, it is always best to look for the underlying factors that led you to debt. You should not be content in treating the symptom. Put more effort into finding the cause of the problem so you can prevent it from happening again in the future. Here are a few of the most common reasons why a lot of consumers are in debt. One of these could be your problem.
Credit card habits that lead to debt
Credit cards have been getting a lot of flack as they are constantly being blamed pointed out as the cause of most debt problems. However, you need to remember that your card is just a tool. At the end of the day, you are still the one who choose to use it for various reasons. This is where debt problems sneak up on you.
Mishandling your credit cards can lead you to unmanageable payments. If you always find the need to use your card to satisfy your desires for new clothes or gadgets, you will have a problem once the bill starts to come in. Especially if you really do not have the financial ability and income to pay for all your purchases in full. Be sure to check how you use your card because it could be putting you in debt.
Sticking to your budget is one of the debt management tips
One of the debt management tips you need to remember when trying to stay away from debt is to stick to your budget. It is one thing to make a budget but it is another to try and follow it. If you have a grocery budget, you need to have it with you when you do the groceries. This way, you have an easier time sticking to your budget. The same thing applies to every item in your budget. You have to make sure that you follow each of them to stay away from overspending and debt.
Miscalculating your discretionary spending
Apart from your daily expenses in your budget, you might have some left for discretionary spending. It can be for things you want or even a nice meal every now and then. Regardless of its nature, this is still an amount that you have to plan for. You set aside a few dollars every week or month for discretionary spending. What you need to look out for is going over what you have set aside and incurred debt along the way.
There are a number of debt management tips you need to keep in mind when you want to start the year on the right note. You just need to keep an eye out for these tips to help you manage your finances better.