Debt is an obligation owed to a person or organisation for the borrowed funds and debts. Most of the people in today’s world have a small or a big amount of debt so even a person having a smaller amount of debt in their name should know how to manage the same. Debt management is a process of knowing a strategy and managing an even very small amount of debts using that strategy. Debt management is a way out that can aid people who are under a pressure to repay the unsecured debts. Debt can get people into trouble if it is unplanned and uncontrolled. Paying debts help reduce the rate of future loans and interest payments.
The amount of debt a person holds has a huge effect on his credit score so higher the debt lower is the score. The higher the credit card balances are relative to the credit limits, the more it affects the credit score. Paying off loan balances is better for the credit score. High credit card debts hurt the credit score and the ability to get new credit cards or loan. Therefore, when the credit score is calculated the credit card and loan balances are taken into consideration.
There are a few strategic ways to manage the debt:
- KNOWING WHOM AND HOW MUCH TO PAY: A person needs to be clear about whom and how much he has to pay. He can do that by making a list of his debts, including the creditor, total amount of debt, monthly payment and the due date.
- WHO AND WHAT TO PAY OFF FIRST: It is crucial to clear important payments first. The person should know which debt to pay first and know how to pay off the loans faster.
- DO THE MATH: A person should do his math. He should calculate how much he usually spends while paying the debt and how much interest the debt collects monthly from him.
- PAYING HIGHER INTEREST DEBTS FIRST: This goes without saying that the person should clear high-interest debts first so that they are smartly cleared rather than getting piled up.
- BILLS PAID ON TIME: If a person does not want a late fee added to his increasing debt then the monthly bills should be paid on time.
- PREPARING A MONTHLY BILL PAYMENT CALENDAR: This is an easy way to keep a note of all the bills.
- MINIMUM AMOUNT: If paying the total amount is not possible or exorbitant then the minimum amount should be paid so that it keeps the debt from growing further.
- MONETARY COUNSELING: A financial counselling or free legal advice can be taken up when a person is not monetarily well off to be able to pay off the debts. Financial counselling is a free service provided by community organisations or legal centres. These organisations also provide free legal advice or service.
- DEBT MANAGEMENT PLAN (DMP): Lastly, there is a debt management plan (DMP) which helps in managing debts and paying them off at a reduced rate. It is a contract made to the creditors when the loans are lowered. Some companies charge a fee for DMP’s, and some don’t. In this plan, they mainly concentrate on helping in the household priority bills so that the other debts are paid faster from what is earned.Therefore, some of these ways should be followed to reduce the debt and help in the proper management of debts.