If you are in debt and are looking for ways to get out of them, y0u’ve come to the right place. Let me share with you 6 tips to manage you debts in a better way.
- Borrow or take loans only for productive purposes. Fancy a car and need to take a loan? Sure. But are you stretching yourself by buying a luxury car or something which will take you from one point to another at half the price? Likewise, if you are thinking of applying for a personal loan, will the loan be used towards generating income sufficient to repay the loan plus interests and still give you a surplus at the end of the day?
- Ensure that you are able to repay your loan instalments comfortably. Paying a loan instalment is one thing. Being able to pay it comfortably is another. By being able to pay comfortably, that means after paying your loan instalments, you still have surplus in your savings to bring forward to the next month and slowly build up your savings. If all the money that you earn are being used to pay your loan instalments, then you’ll need to question yourself whether the loan instalment can be restructured to something more manageable.
- Try not to pay more than 40% of your gross monthly income on loan repayments. A good rule of thumb to observe is to not spend more than 40% of your gross monthly income of loan repayments. Using more than that may put you at risk of having no monetary savings and may hit you hard when emergencies or big ticket purchases occur.
- Consider using surplus funds to pay off your debts. If your surplus funds are not earning you interests as much as the amount of interests that you are paying for your debts, then you should consider using those funds to pay off your debts first. Of course, if your surplus funds are invested in instruments which are earning you higher interests, that would mean that you are in a positive position financially.
- Adhere to the repayment schedule and avoid penalties. Be disciplined and pay off the instalments when due. Penalties in the form of additional interests and late payment charges can add up and are wholly unnecessary burdens to take on.
- Get good creditworthiness by being prompt in payments. Having a good credit scorecard helps in many ways including being able to obtain good financing, better rates, being in a better standing to negotiate restructuring of debts.
These are but 6 tips to help you to manage your debts in a better manner. They are not exhaustive but will help you a long way.
For many of us, we always say that we are doing fine financially whenever a question is posed to us whether we need any help financially. Most of these is due to wanting to maintain a good front that all is well. However, expert studies have shown that there are certain tell-tale signs that a person may seriously need financial advice and should not brush aside such signs or activities as the long term effect may result in the person facing insurmountable debts. Let’s look as some of these signs.
- If you are consistently paying your bills late, you should ask yourself why you are doing so. Is it because you have problem finding the funds to pay the bills? It is good practice to pay timely as this would help you manage your cash flow in a better manner and avoid finding yourself at the deep end without realising that your funds are inadequate to pay the accumulative bills.
- You withdraw funds from your savings to pay your bills. This is a sure sign that your monthly income is insufficient to meet your monthly liabilities which come in the form of bills. When you start dipping your hands into your savings to pay your monthly bills, chances are you are already in a debt-position.
- You start using credit cards to pay for items which you previously used to pay with cash. Is the reason due to being short of cash to pay? If yes, then you may want to see No. 2 above. If you are still able to pay your credit card bills in full when the credit card bills come in, then it is okay.
- You need cash advances from your credit cards and personal loans to fund your lifestyle. If you are in this stage, then you might be in serious financial trouble. Paying hefty interests on credit cards and personal loans to fund a lifestyle is a sure recipe for financial disaster. Consider changing your lifestyle and omit the need to dip into cash advances.
- You constantly borrow money from relatives and friends. That’s pretty obvious.
- You keep refinancing your debt. If you are on the lookout for balance transfers or re-financing, chances are you are already having difficulty trying to manage your monthly repayments.
Seek an expert financial consultant for advice. It will do you a world of good.