6 steps to manage existing debt

Debt is like a sword that is constantly hanging over you. It can be a burden on your finances and your mental health. Whether it is student loans, credit card debt, car loans, or a mortgage, managing existing debt is vital to keep your finances under control and reduce overall stress. Here are a few ways to manage existing debt. 

Create a Budget

The most crucial step to managing any debt is creating a budget. It will help you understand how you’re spending money and identify areas to cut back on to allow you to allocate more money toward paying your debt. Tracking your expenses for a few months will help you understand how to make changes. Once you have working knowledge of your finances, create a budget that allows you to pay your bills and essentials while keeping aside enough money for your debt. 

Prioritize Your Debt

If you have more than one debt, prioritize which one to pay off first. Create a list of the debt owed, including interest rates and minimum payment. Then focus on getting rid of the debt with the highest interest rate first. It will help save interest money over time. Once done, move on to the debt with the next highest interest rate until you have finished paying them off. 

Consider Consolidation

With multiple debts to pay off, it can get challenging. Consolidating your debt is a good idea to oversee it. It involves taking out a new loan to pay off multiple debts. This way, you have just one monthly payment to make. It significantly simplifies your finances and lowers your interest rate and monthly payment amount. There are several ways to consolidate your debt, like personal loans, balance transfer credit cards, and home equity loans. However, learn about the fees included, and the interest rate associated with consolidation.

Make Extra Payments

Whenever possible, ensure that you make extra payments toward your debt. It can help you pay it off faster and reduce the interest you pay over time. Pay extra toward your highest interest rate debt first and then move on to the rest. Even small payments can have a huge impact over time. Look for ways to free up money to put toward your debt. 

Negotiate with Creditors

If you’re experiencing financial hardship, negotiate with your creditor. Many creditors will be willing to work with you to create a repayment plan that fits your budget. Speak to your creditor and ask for a lower interest rate, reduce your minimum payment, or even forgive some of your debt in exchange for a lump sum payment. Be proactive and communicate to find a solution that works for you. 

Avoid New Debt

Avoiding new debt when you have existing debt is vital. Taking on new debt can undo any progress made toward clearing off dues. Try to live within your means and avoid using credit cards for everyday purchases. If you use credit, ensure there is a plan to pay it off quickly to avoid accruing interest charges.