Managing Debt – Some Do’s and Don’ts To Consider
According to several sources, the average American household carries a debt of more than $137,000. That number takes every kind of debt into account, but the bottom line is that people who are in debt too often tend to stay that way, as they spend years if not longer scrambling every month simply to make ends meet. As a result, they never really knock out that debt or even an appreciable portion of it. This is not a happy way to live, especially when there are proactive steps that can be taken with regard to managing debt that can make an enormous difference.
Wise Loan has been helping people with managing debt for years, and if you’ve considered steps such as debt consolidation, debt settlement or other approaches, you should take a step back for a brief moment and consider the larger strategy before jumping at the next thing that seems like it could be helpful. There are some do’s and don’ts to managing debt, and we’re going to present a few of them below so that you can start to look at this from the bigger picture perspective. That could help you put your debts behind you and pave the way to a happier life.
Take a Full Accounting
If you’re mapping out a journey to a particular destination, you can’t effectively do so without plotting out exactly where you are in the first place. The same idea holds true with managing debt: You need to take the time necessary to complete a full accounting of your situation. This includes:
- All of your income
- The value of any other assets
- All of your secured debt
- All of your unsecured debt
- Your monthly obligations
- Any savings you put aside every month
- The amount of spending money you run through
There could be more items on this list for some, but the variables above represent a general picture of what a full accounting should look like. Laying all of this out will help you determine what, if anything, you have available every month to chip away at the debt you want to diminish or eliminate.
Put a Budget in Place
No one likes putting together a budget. This is not exciting, it’s not fun and it’s not something that people necessarily want to adhere to when it comes to their finances. However, any debt management plan needs a sound and realistic budget in place, or else the concept of fiscal discipline will remain fleeting at best. Fortunately, your budget should not be too difficult to put together after you complete the first step above.
One thing that you may want to keep in mind is that you don’t want to set a budget that’s overly strict. Think of this as a sort of diet: If you go on some crash diet where all you eat is lettuce and all you drink is water, it’s not going to last. The same holds true with debt management. If you allow yourself $5 for spending money and you “decide” to cut your food spending by 75%, you’re not setting yourself up for success.
Eliminate High-Interest Debts
Now that you’ve taken early debt management steps that include a close look at your situation and setting out a reasonable budget, take a close look at each of your debts. It’s likely that some are going to carry higher interest rates than others, and you should look to steer any available funds every month towards those debts first. That’s going to potentially save you quite a bit in interest payments over the course of months or years, and that typically means attacking that credit card debt first.
Debt Consolidation May Be a Good Idea
Finally, if it’s possible to reorganize some of your debts such that you are making fewer payments every month and those debts can be consolidated into something with a lower interest rate, you may want to consider that as well. This will make your debt management process easier, as you’ll have fewer payments to remember, and it could, once again, save you money based on those lower interest rates.
Overall, debt management is something that we all need to do on some level. Either we master our debt or it becomes our master. A good debt management program can bring things under control for you, and a good resource/partner can help you achieve the debt-free dreams you’ve had on your mind for however long it’s been. If you’d like help changing the course of your finances, go ahead and take a look at our loan program to get started. We look forward to working with you.
The recommendations contained in this article are designed for informational purposes only. Essential Lending DBA Wise Loan does not guarantee the accuracy of the information provided in this article; is not responsible for any errors, omissions, or misrepresentations; and is not responsible for the consequences of any decisions or actions taken as a result of the information provided above.