No matter if you have a little bit of debt or a large amount, it’s extremely beneficial to know how to manage your debt. By knowing how to keep track of and pay down your debt, you’re in a much better position to become debt free more quickly. The sooner you pay off debt, the less you’ll pay towards interest and the better your credit score will be.
Keep reading to learn 4 tips to better manage your debt.
If you’re like most people, chances are that you owe money to a variety of creditors. From auto loans to mortgages to credit cards, it’s not uncommon to have debt from various sources. One of the first things to do in order to better manage your debt is to write everything down. By having a list of all of your debt, you can get a better idea of which debt should be paid down first.
When making a list of all of your debts, be sure to include:
- The creditor
- The total amount of debt you owe
- Interest rate
- Monthly payment
- Payment due date
If you want to be sure that your list is correct, compare it with the debt listed on your credit report. Seeing all of your debt in a consolidated list is a real eye-opener and allows you to get the bigger picture of your financial standing. For example, you can use the list to create a plan for tackling your debt, such as by paying down highest-interest debt first.
Now that you have got a solid list of the debt you owe and to who you owe it to, the next step is to figure out which debt to tackle first. While you’ll continue to make payments on all of your debt, there’s certain debt that you’ll want to double if not triple up on payments so that you can pay it off quicker.
Most people pay off their highest interest rate debt first. The higher the interest rate, the more money the debt is costing you each month. Others prefer to pay off their debt with the smallest balance first. No matter how you decide to pay off your debt, the key is to prioritize so that you have a plan of attack.
A large part of managing your debt is making at least the minimum payment for each of your debts. Paying less than the minimum makes it harder to pay down your debt because most creditors will hit you with a free. Not paying at least the minimum also increases the amount of interest that you pay on the total amount due.
Paying the minimum amount due is a start, but it’s not the ideal option for effectively managing your debt. The problem with paying just the minimum is that it doesn’t result in any real progress in paying down your debt, but it does keep your debt from growing and keeps you in good standing with the creditors.
As you start to pay down and pay off debt, you should have more money available to put towards other payments. Instead of frivolously spending this money, you can instead put more towards your debt. This way more money goes towards the principal balance and you’ll pay less in interest.
To learn more about minimum payments and how to decrease the amount of money you pay towards interest, check out sites like Get Out of Debt to learn all of the tips and tricks you need.
Late payment fees will only keep you in debt for even longer. For every payment that you miss, the creditor will charge you a late fee, which can range between $25 or much more. If you make two late payments in a row, the creditors may increase your interest rate, which also makes it more difficult to tackle your debt.
When managing your debt, the best thing you can do is to always pay your bills on time each month. The easiest way to ensure you’re never late is to enroll in automatic payments. Using automatic payments, the creditor will automatically withdraw money from your account on the date you specify. Payments can be set to be deducted weekly, bi-weekly, or on a set date each month.
By enrolling in automatic payments, you can have peace of mind that you’ll never have a late payment again. If your creditor doesn’t offer automatic payments, the next best option is to create a payment calendar that notates when all of your non-automatic debt payments are due. You can refer to the calendar and receive notices when payments are coming due.
By following these 4 tips, you’ll be well on your way to better managing your debt and paying it off. The less debt you have, the more financial security and freedom you can enjoy!
To ready more on topics like this, check out the finance category.