One of the financial goals you might be trying to accomplish this year is the ability to manage debt accounts. It is a burden for a lot of people to be carrying multiple financial obligations on their shoulders. It can also cause undue and unnecessary stress on your part. This financial stress can even manifest into physical and emotional problems.
Money management usually precedes debt management and is often a vital key to addressing the issue. However, there is one aspect of that is often overlooked by a lot of people. Partly because it is one of the hardest things to do. A lot of financial plans have revolved around this goal and failed. It can be frustrating at times and cause people to just give up.
How do you manage debt?
If you are trying to manage debt, the most sensible thing to do is to make sure that you are able to monitor your expenses and income. You also need to make sure that your income does not fall under your expenses. One of the best ways to do this is to create wealth. It not only gives you the ability to pay for your expenses. It also provides a financial cushion when you hit an unexpected bump on the road.
Where is wealth created?
Federalreserve.gov recently shared that revolving credit for consumers increased by about 13.5% from 2015 to 2016. It just keeps coming after a debt is paid off. This is not the path to wealth. In the simplest of terms, wealth lies in between a specific gap. This gap is the space between your income and expense.
How to widen that gap?
This gap can be a positive one when your income is bigger than the expense. This is positive wealth. When it is the other way around and your debt is bigger than your income, then you have a big problem. The idea is to widen and create a wide gap with your income on top. Here are a few things you can look into to make that happen.
Increase your income
Increase in income is the general idea and there are a few ways to achieve this. One of the most common things people do is taking on extra work. There are some who takes on a second or even a third job to supplement their income. For some, they clock in overtime work in the office. Others try to look for ways to get promoted in the office to get a higher pay.
To help you manage debt better, you need to widen that gap and increasing income should be on top of your list. It is harder to do but it has some long-term effects. Once you are able to bump up your income, you get more elbow room with your budget. You are able to cover more ground and keep your debts from piling up.
Lower your expenses
The next best thing you can do to widen that gap is to lower down your expenses. You need to take a close hard look at your expense list and make some hard decisions. At this point, you should already have an idea your wants versus your needs. With your expense list on hand, you need to clearly separate the two and start striking out your wants.
It does not mean that you will suck out all the fun as you eliminate a lot of your “wants” in your budget. You just need to park some of them and get back to it when you are able to manage debt payments a lot better. As you are able to widen that gap and create wealth, you would be in a better position to pursue some of your wants in life.
Mind your budget
As you increase your income and lower your expense, you have to keep a close eye on your household budget. You need to make sure that you are able to balance everything and not just focus on increasing income and lowering expenses. There are a lot more to your finances than those two items and focusing on them could lead to overlooking other critical areas in your budget.
You need to make sure that your budget gives you the chance to juggle everything without missing a beat. It should give you an overview of what is happening with your finances. Your budget should be able to give you the flexibility of making quick adjustments as you monitor and adjust to ever growing changes.
Lay out long-term financial goals
You need a target to aim for so you can put a structure in your journey to creating wealth and managing your debt payments. If you do not have a goal to aspire for, you run the risk of wandering aimlessly with no end in sight. Your present actions need to be benchmarked with a future goal so you can assess your improvement or how far you have gone.
Invest your money
Gallup.com shared in a recent article that Americans venturing into investments are at an all-time low. From a high of 65% in 2017, it is now at 52% in 2016. The same level in 2013 during the Great Recession. People are not taking advantage of being able to make their money work for them.
Compound interest is better as a friend than an enemy. If you are able to start early with investments, the principal amount would earn interest on interest. The longer you keep at it, the bigger the amount grows. This helps you manage debt even better because you get to increase your wealth over time.
Consider debt consolidation
If you are already neck deep with the sheer amount of debt accounts that you are trying to keep up with, consider debt consolidation. The program allows you to combine your debts under one account. This gives you one set of everything – due date, interest rate, repayment time frame, and payment amount.
You can take out a small loan with a low-interest rate to pay for your several debt accounts. It is important that your interest payment is lower that your previous one to save money. When most of your debt is coming from your credit card, you can consolidate with a balance transfer. You look for a card with a low to 0% interest rate and transfer your debt to that card. It saves you interest payment due to a lower rate.
Do what you love
There is an old saying telling people that if they are able to work on something they love, they will never work a day in their life. This simply means that if you love what you are doing, it would not feel like working. Take some of the athletes for example – most of them got into the sport because they love playing it from an early age. They carry that same love for the game as they become professional athletes. They get paid to do something they already love.
It is not easy to manage debt but it certainly is not impossible. If you can widen the gap between your income and expense and create wealth along the way, you are on the right track.