Debt can be challenging to handle at times. However, the key to this type of financial problem is knowing how to manage your funds. That way, you’ll have enough money to make your debt payments on time without risking the amount you’ve set aside for your daily expenses.
In this article
How Much Debt Do You Owe?
The first step to managing your debts is to know how much you owe. To do this, you’ll need to gather the following information:
- The total amount you owe can be computed using a financial calculator.
- The type of debt (personal loan, mortgage, or credit card)
- Minimum repayment amount
- Interest rate
After getting the details above, the next thing is to calculate or estimate your disposable income. Disposable income means the amount of cash you have after paying all the necessary expenses. It’ll be the money you put toward paying off your debts. Also, don’t forget to include all of your debt’s minimum payment amounts when calculating your necessary expenses.
Always Pay Your Bills On Time
Late payments are bad news. It’ll be more difficult to pay off your debts since you’ll be charged a late fee every time you miss a payment. Also, if you miss at least two payments in a row, your finance charges and interest rate will go up. There are also sites that offer cash advance loans which could help you pay your bills on time like CreditNinja.com.
Consider using the calendar on your smartphone or computer to set a monthly reminder on your debt payments. If you ever miss a payment, endeavor to pay it as soon as possible and not wait till the next due date. Doing so might cause your creditor to report the late payment to the credit bureau. Such reports can affect your credit score.
Do Your Best To Make The Minimum Payments
If it’s difficult paying the full repayment amount, it’d help to make the minimum payment. Although this action doesn’t equate to real progress in paying off your debts, it can help your account maintain good standing.
Know How To Prioritize Your Debts
Consider paying off credit card debts first. This is because they usually have higher interest rates than any other debt type. Also, if you have several credit cards, the one with the highest interest rate should be given priority because they cost you more money.
Consider Debt Relief Options
If you’re having any trouble paying your debts on your own, you might need some external help. Below are some of the debt relief options you can choose from:
- Debt Consolidation
One of the options you can consider is debt consolidation. It’s a way of combining all your debts into one to manage them easily. One common way to do this is by taking out a balance transfer credit card or a personal loan and then using the funds to pay off other debts.
Choosing debt consolidation means you only have one monthly payment to make. This means debt repayments are now simpler. Also, it reduces the chances of having a missed payment date.
- Debt Settlement
Another option you can try is debt settlement. This is when either you or a representative negotiates with your creditor to pay less of what you actually owe. For example, if you owe $7,000, you could do your best to settle the debt for $6,000.
If the creditor agrees, you should be ready to pay the total settlement amount upfront and in full. After paying the agreed amount, the creditor will then report your debts as settled. Problem solved.
- Bankruptcy
Consumers can choose to file either Chapter 7 or Chapter 13 Bankruptcy to discharge their debts.
In Chapter 7 Bankruptcy, the consumer will need to liquidate all of his assets. After doing so, he’ll be able to discharge most of his debts. In Chapter 13 Bankruptcy, the consumer will need to set up a payment plan that he needs to follow to repay as much debt as possible. After completing the said plan, he can then discharge any remaining debt. This plan usually lasts for about three to five years.
It’s important to know that the type of bankruptcy you can qualify for entirely depends on your current financial situation. If you make enough money to pass a means test, you may be qualified to file a Chapter 13 Bankruptcy. It’s also important to know that although bankruptcy can be helpful in paying your debts, it can impact your credit score negatively for several years to come.
To Sum It All Up
Not being able to manage your debts efficiently can lead to several financial problems along the way. It would help to consider the methods enumerated above in managing your debts. That way, you won’t have any problem making on-time payments and boosting your credit score.
