Successful debt management is one of the greatest financial challenges most of us face. Here are the top five ways to better manage your debt, no matter how much you owe.
1. Know Who and How Much You Owe
Make a list of your debts, including the creditor, total amount of the debt, monthly payment, interest rate, and due date. You can use your credit report to confirm the debts on your list. Having all the debts in front of you will allow you to see the bigger picture.
2. Pay Your Bills on Time Each Month
Late payments make it harder to pay off your debt. This is because you’ll have to pay a late fee for every payment you miss. If you miss two payments in a row, your interest rate and finance charges will increase. Your credit score will also drop. You can use the calendar app on your smartphone or in Google to set reminders on when your bills are due. If you have had to pay bills late, contact your creditor. Since the COVID-19 pandemic, most, if not all, are waiving late fees.
3. Make at Least the Minimum Payment
If you can’t afford to pay anything more, at least make the minimum payment. Of course, the minimum payment doesn’t help you make real progress in paying off your debt. However, it will keep your account in good standing, which avoids late fees. Whenever you can, though, pay more than the minimum. Look at your bill — there is usually a box that will tell you the savings in paying “X” instead of the minimum. Try to pay as close to “X” as possible.
4. Pay Off Your Highest Interest Debt First
Paying off credit card debt first is often the best strategy. This is because credit cards have higher interest rates than other debts. Of all your credit cards, the one with the highest interest rate usually gets priority on repayment because it’s costing the most money. Use the debt list you created in “Tip 1″ to prioritize and rank your debts in the order you want to pay them off. Always try to pay off the debts with the highest interest first. However, you may also choose to pay off the debt with the lowest balance first.
5. Use a Monthly Budget to Plan Your Expenses
Keeping a budget is one of the best things you can do to better manage debt. A budget is the surest way you can plan to meet your expenses every month. A regular monthly budget will also help you to plan far enough in advance and take early action if it looks like you won’t have enough money for your bills this month or next. A budget also helps you plan to spend any extra money you have left after expenses are covered. You can use this extra money to pay off debt faster.
What do you think of these Top 5 Debt Management Tips? Are there any you would like to add?