The basics of personal debt management plan

Just as governments all over the world adopt fiscal and monetary policies to control their economies to bring in the needed efficiencies, individual members of the society also need to adopt pragmatic measures to ensure debt free life styles.

The tendency to spend more than one earns is high. This is compounded by mouthwatering hire purchases, credit term purchases, and long term loan facilities and over draft schemes provided by consumer financing firms and banks. In most cases, we find ourselves being suffocated by the debts incurred. This calls for extra money to clear the debts, leaving us with nothing to keep body and soul together.

In fact, being in debt makes you hopeless with all fingers pointing at you when your creditors come knocking on your door. In the end, it becomes so shameful that everyone gets to know you owe.

In the same manner, the banks come in for the building or that cherished property set aside as collateral. They make sure to debit your account with the money long before your salary hits the account. This leaves you with meagre amounts only for sustenance. The fearful one is finding yourself at the court and begging not to be thrown into jail because of your debts.

Admittedly, it actually feels impossible sometimes leaving this cycle but a properly detailed plan, followed through, can set you free from this crunch. Knowing how to manage your financial debts efficiently will surely set you on the path to being debt free.

The fundamental point to understand here is to make your debts work for you and not against you. Debts must essentially add value to your portfolio and not actually sting you. The basics really lie in your own resolution and how much debt you owe but before taking out any personal debt, it is vital you understand the terms.

Clearly, you will have to pay back the entire amount plus interest, but beyond that, the terms and conditions may vary extensively. Subject to or dependent on the type of debt you contract, there should be different clauses to understand and that should fix into what you want the debts to do for you.

Debts contracted for education, mortgages, business ventures and insurance can be rewarding but those incurred for recurrent non-profitable expenditures or ventures can be a loss if not well utilised for their purpose.

In the vein, it is important to understand the terms of the credit cards and be thoughtful when using them. It is imperative to strive to pay off debts in full every month, and it helps to get the basics of properly managing personal debts. Here are a few tips.

Draw up a budget Having a detailed plan of how much you receive and spend at the end of every month will help you keep track of where your money is going to. Followed to the letter, you will see which items are unnecessary to buy and how wasteful they are as they command for some amount of your income. This surely will let you cut back on some spending that leads to debts.

Scan for cheaper, quality service providers There are a lot of relatively cheaper but quality service providers in the market who can help us save a lot on our finances. Our phone service providers, internet service providers, pay-per-view TV stations and educational institutions can offer us alternatives and value for money if we really look out for new ones, rather than sticking to those currently providing for us in the market.

By this, we can reduce exorbitant costs from those that are making life a bit more difficult for us.

Save No matter the size of your budget or pocket, save a small percentage of your income. Let’s say about 10 per cent and see how much you will have in about five years. In the event you are not able to clear your monthly debt repayments, fall on this for that purpose rather than going in for another credit to pay off the old debt.

Even if it is not to clear the debt, use this to cushion yourself in times of emergency or for your retirement. By so doing, you will be weaning yourself gradually off debts.

Have limits Before buying anything, find out from your budget if you can afford it. Really, our spending habits and patterns do tell greatly if we will be indebted or not. Just buying to satisfy our desires will always throw us into debts, making us feel the consequences thereof. Knowing our limits and changing our spending habits to fit into our means could greatly help us stay afloat debts.

Stop the credits Reducing or absolutely avoiding credit purchases will greatly alleviate you from the problems of debts. If we are able to organise ourselves well, we can balance our recurrent household’s budget by knowing how much we can afford per our incomes.

The things we want but cannot be purchased now because of cash limits can wait till we have enough to cover for their prices. However, when we buy on credit though there is not enough to pay for them, we never leave the cycle of poverty and debt traps.

The best to do is to delay the satisfaction till another time. Though an opportunity costs sometimes, this sacrifice will rather make us happy than sad.

Pay the highest debt first Try paying off the debts with the highest interest rate first with any windfall that comes your way. If it is the savings you will want to use for the purpose of clearing your debts, still target the highest debt first whilst still clearing off the least debt amount according to the repayment plan.

When done, go for the next highest debt in that order till all the debts you owe have been cleared. Going by this strategy, you will gradually free yourself from accumulated debts. This is known as the snowball method.

Seek advice The basis for employing a debt management plan is to take control over your spending. An effective strategy in the plan is to personally identify where you fall short and identify ways of closing in the gaps.

This can also be done further by seeking expertise advice from your financial adviser, bankers and your money lenders on how to be financially sound. An aggregate of all these will help to relegate debt-related problems from your finances.

Conclusion Staying by your resolution to spend within your means should be a matter of urgency. This is due to the fact of worse results that come up when our accounts show red.

Let’s start working towards an effective debt management plan. The writer is a business and financial analyst. Email: ebojustyy@yahoo.com