Poor debt management is something that can damage your ability to take loans when you need them most. The piling interest may also cause you to worry, leading to anxiety and depression in some cases.
To avoid this, it’s best to start tackling your debt.
Here are 4 tips to help you free yourself from the debt trap:
Be Aware of What you Owe
You may already know what you owe, but this doesn’t mean that you’re aware of it. Write down a complete list of your debts with their interest and future payments. Make a chart of future payments that are divided into monthly payments or according to individual loans.
It’s similar to how writing your goals down gives you a psychological edge in achieving them.
Create a Payment Strategy
Next, you should choose a strategy to pay off your debts completely. Some common debt cancellation strategies include:
- Paying off your smallest debts first: If you have many small debts, then paying off smaller debts first is the ultimate confidence booster.
- Tackle the highest amount first: Paying off a large debt first requires dedication and self-confidence, but it’s the best way to free yourself from any debt overburden.
- Start with debts with the highest interest rate: This is the soundest strategy you can implement when managing your debt. Not only does it give you more buying power, but it also helps stop interest from overaccumulation.
Don’t Borrow When It’s Not Necessary
With so many avenues open for borrowing nowadays, you won’t always know when not to borrow. As a rule of thumb, always avoid borrowing non-essential items, especially if they are payable in the short term.
Keep your Debt-to-Income Ratio Low
The ideal debt-to-income ratio is 30-35%. This figure includes credit card payments, mortgages, bank loans, etc. Anything higher than 35% will become complicated.
Remember that feeling anxious over piling debt won’t solve the problem, but creating an effective debt management strategy will.