The Right Debt Management Solutions for Reaching Your Goals
Debt per se is not necessarily bad. If you go into debt to successfully achieve good profitability in a business undertaking, then it would have been worth it, especially when you finish paying off the debt from the revenue you earned.
The Right Debt Management Solutions for Reaching Your Goals
If you go into debt to carry out a business idea or an undertaking, and you are under the assumption that you have adequately worked on the Business Plan and you are not improvising on it, you should assume that over time the same undertaking would probably result in excessive debt. This is when you need debt management solutions.
Consumer Debt
What is not a good idea is to assume debt for consumption, such as to buy clothes, to go on a vacation trip, to spend it on fun and leisure, etc. These types of "uses" only generate expenses and no future monetary compensation. However, the debt contracted and the interest it generates must still be paid, which means that you are compromising your future income, which is income that will not improve due to having taken on said debt, as is the case in the examples in the previous paragraph. And, you should beware of consumer debt, besides everything, is expensive.
Good Planning
The above does not mean that you should not buy brand-name clothes that you like, or that you should not travel on your vacations. What is being considered is that these expenses must be planned, in such a way that they do not compromise your future. Look at it this way, you go into debt for a pleasure trip. The trip lasts a week, and the debt lasts two years. Sure, someone could argue and say "yes, I owe money to the bank and I'm paying high interest, but no one will take away my fun.” The problem is, if you didn't plan something as simple as a vacation, chances are you haven't planned other aspects of your personal finances either.
Therefore, what happens if, during those two years, an unwanted event occurs, an emergency, and you need money, but you are already in debt, the interest payment limited your ability to save, and you do not have an emergency fund, and now, who can help you? Good planning and debt payoff planner are two of the ideal debt management solutions in this case.
The Primary Causes
If you analyze what has been raised so far, and you can summarize the main causes of ending up in a situation of over-indebtedness in the following:
Lack of financial planning
Not having a savings culture
Lack of anticipation of emergencies
Impulse purchases
Pretend to lead a standard of living that does not adjust to your reality
The interaction of all these "bad habits" can trigger a debt situation that will undoubtedly be stressful, affect your emotional life, make you irritable, affecting coexistence with your environment, limit and stagnate your wealth growth, among other things.
Organizing Your Expenses
To get out of such a state of financial chaos and create debt management goals for yourself, you will have to do what should have been done from the beginning: sit in front of the computer, and make a budget, that is, organizing your income and expenses, all very detailed. In this case, the miscellaneous expenses do not work. The maximum detail of your expenses is necessary because once the budget is finished, you must analyze it, see what you are spending the money on, and which of those expenses can be eliminated or exchanged for substitute products or services of lower cost. Because what you must be clear about is that if you previously said "no one will take my fun from me", to get out of a situation of over-indebtedness, now you are necessarily going to have to give up some consumption that you may have become accustomed to. In other words, you will have to make financial adjustments.
Using Credit Cards
Once you have managed to reduce your expenses, and are generating surpluses again, you must immediately pre-cancel debt, starting with the most expensive that usually corresponds to credit cards, a classic source of debt when you do not know how to use them. Some behave as if credit cards are an extension of their capital. No, it is the debt. Again, credit cards are not necessarily bad, but you have to know how to use them. As you pay off debt, the lower interest payment will reinforce your savings effort by reducing or eliminating unnecessary expenses, freeing up more cash within your budget.
Paying Off Your Credit Card
Buying debt as a mechanism to reduce the cost of interest and improve your cash flow also works, but you have to know how to do it and have a lot of discipline. Ideally, the debt that must be applied to these schemes is that of credit cards, which you know are quite expensive. However, be careful, after doing so, the fact that the credit line of the card is free and available again, does not mean that you no longer have debt. You still have the debt, only to the entity that bought the debt and generated a payment scheme. The credit card you paid off and that is now clean should be kept in a locked drawer, and from now on, only for emergencies. In this way, little by little it comes to the fore.
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Good Financial Functioning
Debt management is a key pillar for the proper financial functioning of your household. You must conduct a thorough analysis to establish an optimal debt portfolio for your household. Within this financial analysis, it is necessary to determine the internal needs of the household while examining all financial possibilities. Selecting the financial products that are best suited to household activity influences your debt performance. The financial products could be in the form of a credit card, cash, line of credit, or loan. You have to know how to manage them so that you are in control of your debt and your household finances. You have to set debt repayment goals in order to stay above the water.
Here are some keys to help you in managing your household debt as some alternatives that adapt to the needs of your family.
Manage the expiration period well
It is not the same to have to pay back the money in the next three months as in three years. If you estimate the return period well, you can save a lot of interest. In this case, you can incur two different scenarios, on the one hand, that you exceed the expiration period, and on the other, that you need a longer period. We explain both options:
- Expiration term longer than necessary: Keep in mind that if you exceed the term, you will have to continue paying the corresponding interest or amortize your loan. It is recommended that you adjust the deadlines well.
- Expiration term shorter than necessary: If, on the other hand, the return period is less than what your household can afford, you will have to pay the delayed costs.
Both the first option and the second will increase your debt. So study your own characteristics well and spend the necessary time to establish the return period.
The philosophy of spending without getting into debt will provide you with “mental health and will free you from unnecessary drowning in debt,” but it is true that you live in a world where you need to consume. But, all in all, this need can be managed.
Controlling and Recording Expenses
Controlling and recording expenses is the most important thing and the necessary starting point for “everything else”. Very few people are aware of how much money they use and for what. They can say yes, but when faced with the cold numbers, he might see it as a big surprise.
Spending Diary
Keeping a spending diary allows you to know exactly“ where the money is going, what margin you have to save or spend and where you can cut back, to use it on something else that you want more,” which reduces the possibility of borrowing more.
Emergency Fund
Another option along the same lines is less use of credit cards. Many people think that it is convenient to have this banking product to use for emergencies, but the truth is that "they are almost never used for this purpose, but are a constant temptation that encourages you to buy products that you really do not need. As it is, it is worth thinking in advance about other possible emergencies that you may face and how you would financially handle them.
Doing so can help you prepare for certain eventualities. It will show you the importance of budgeting for these things or creating "an emergency fund for them." By adjusting to this mindset, you can also better control your finances and the decisions you make that translate into money spent or money saved.
Handling Loan Payments
In this sense, it is advisable to avoid high-cost debts. Prepayment loans and tax refund anticipation loans are types of credits that will end up costing you a lot of money. They are attractive because you can easily be approved and receive money immediately. A tax refund advance loan can be just as expensive. If you don't meet your prepayment credit, your credit score will drop. You can avoid these loans if you ask for more time to pay an account or try to obtain small financing from your bank or a relative.
Debt Consolidation
On the other hand, another tip you should think about avoiding is debt consolidation. Some companies offer you money to "consolidate your accounts." You make monthly payments to another company that promises to settle all the accounts on your behalf. However, it is likely that the debt consolidation company will charge you a very high-interest rate for this service. There is a chance that some of your original accounts were not interest-free, and worse still, the consolidation loan can turn unsecured debt into secured debt if you use your home or other assets as collateral.
Conclusion
These debt management solutions are only a few to consider, but there are many more you can take advantage of. You can visit the Goalry platform and go directly to the Debtry and Billry stores to get more tips on managing your debt and successfully handling your household expenses. There is so much you can achieve by visiting the platform and following the recommendations for debt free living goals you can accomplish.