How to manage debts wisely

Nowadays, it has become almost impossible to survive without debts. This is not necessarily a bad thing as debts can be beneficial if the interest payable is justified by some monetary benefits in future. The returns in such a case will eventually cover the interest expense. However, if debts are not managed properly, they can lead to bankruptcy.

In order to manage your debts wisely, it is important to come up with a budget that will help you to determine your borrowing threshold. You should always consult the budget before making a borrowing decision. Put the monthly payback amount in the budget to determine how it will affect your ability to meet your other financial obligations. Most financial advisers suggest that the debt repayment amount should not be more than 30% of your total income. Carry out a research on the lending institution that has the lowest processing fee and interest rates. After you receive the loan, ensure that the repayment is done on or before the due date to avoid unnecessary penalties. With the rest of the money you can do fun things, but with discount.

In case you realise that you have already sunk deep into debt; it is time to come up with a repayment plan. If you have several loans, begin by itemising them on a sheet of paper, including details such as loan balance, interest rates, repayment amount and the period left for the loan repayment. Look for funds to pay the loans, beginning with those loan balances that are small. You can raise funds by cutting back on the non-essential expenses or even liquidating the collateral for the loan. You can also reduce the monthly interest amount by consolidating loans.

If you intend to avoid getting into a debt crisis, then it’s important to avoid ignoring your financial obligations. Most people tend to be insensitive or indifferent when it gets to debt repayment. They tend to argue that since they aren’t earning enough, the loan can wait. This mindset only helps to cripple them financially. Even if you find yourself struggling to meet your other obligations, you should prioritise the repayment of debts.


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