People easily tend to get into debt especially if they spend more than they actually earn in a month. Unfortunately, getting into debt is a common problem for numerous households these days.
The best and most logical solution to overcome and prevent debt is to spend less than you generate as an income each month. However, as you may know by now, that is not as simple as it sounds. Getting out of debt or preventing to accumulate mountains of it entails financial discipline. Here are two debt management strategies that would certainly be effective for you.
Snow ball strategy
Of all the debt management strategies that may be known to consumers, this one could be considered as the most analytical. This is because there is a need to identify and classify the most expensive among all your existing loans and debts. Expensiveness is classified through the interest payments required and all other charges that come with those.
To use and implement the snow ball strategy in debt management, identify your current most expensive debts and have the resolve to pay them off first before all other loans. Those debts that do not come with high APRs could be less prioritised for a while. Intend to pay minimum required payments on those less expensive debts as you concentrate on the more expensive ones for the meantime.
Experts assert that ‘snowballing’ would surely help anyone in financial distress to be more organised and systematic in managing and handling debts. It is like putting off more difficult problems first before dealing with the easier ones. In reality, you may agree that solving harsher problems first would make you resolve the less difficult ones easier.
Most debt management strategies entail prioritisation of specific debts. This second strategy is different from the first in that priorities do not favour the expensive loans. You could prioritise your debts based on the nature and possible effects.
For instance, you should always prioritise not losing your home. Thus, mortgages should always be on top of your list of debts that should be paid off first. Your home loan may not be as expensive as your other debts but you should not falter in repaying the dues required for it. Thus, intend to always make your mortgage payments on time, no matter what happens.
After your mortgage and other loans with security, prioritise your debts that incur higher interest rates. You may consider consolidating or transferring such loans into a low-interest credit card. It is a logical and wise action to take. Just be sure your card’s balance transfer feature is not limited to just a specific period or you may get into a bigger trouble because many credit cards with introductory 0% or lower balance transfer costs impose much higher rates after a prescribed period.
Which of these two debt management strategies is more appropriate and applicable to your current personal and financial situation? If you intend to get out of your debt problem, you should start taking actions to do it now.
Andrew has been working in the finance industry for several years as a debt consolidation specialist. When he is not working, Andrew likes to share his knowledge and help people.