If you are concerned about the amount of debt you have, or are having trouble keeping up with repayments, there are steps you can take to help manage your debt and get your financial situation under control.
Assess Your Debt
It’s time to take stock of exactly how much money you owe, and to how many lenders. Some people are unaware of how much debt they are in because it spread over a number of seemingly manageable smaller debts, all of which are attracting interest separately. A car loan of $6000 and a couple of credit cards owing $2000 might not seem like much, but add it all up and that’s $10,000 you owe.
Understand Your Debt
Before you can set yourself up for a better financial future, it is important to understand how you arrived at this situation and avoid repeating the same mistakes. Did you splash out on a few large purchases, or are you using your credit card just to get by each week?
In either case, keeping a budget will help you determine where your money is going. Avoiding debt simply means spending less than you earn. It may sound obvious, but without keeping a budget you won’t know if you are living beyond your means, orS how much you can afford to make in repayments.
Paying Down Debt
Once you have determined how much you can afford to repay each month, work out how you want to approach your debt:
Start with the highest interest rate – by tackling the loan or credit card with the highest interest rate first, you can save yourself added interest.
Start with the smallest amount – alternatively, by paying off the smallest amount first, you will have fewer total loans and fewer payments to make each month.
Remember that whichever of these methods you decide to employ, you will still need to meet the minimum monthly repayments on all your debts.
If you are having trouble keeping up with the number of debts you have, you might consider refinancing. Refinancing means taking out one large loan that will cover all your debts, leaving you with one (larger) debt to pay off. However refinancing is not suitable for everyone. In some cases, people are not able to budget for the larger monthly repayment, while other people slip back into debt by spending money on the credit cards they have just paid off.
Ask For Help
If you feel your situation is too far advanced, or you feel unable to take the steps to manage your debt on your own, don’t be afraid of asking for help. A financial counsellor or financial advisor can help to assess your situation and help you to decide on the best course of action.