This is how you manage your debt in a favorable wayUncategorized
No matter what type of debt you have, one thing is for sure. It will always pay off for your personal finances to operate it in a favorable and efficient manner. This can save you a lot of money in the long run, and will also give you more financial freedom in your everyday life.
Chart your payment capacity
If you want to work more consciously with your debt, this is the first thing to do. Then, first and foremost, you need to set up a proper budget for your personal finances. You can choose to pay for a budget program, or you can create one yourself in Excel.
Start by setting up your income, as well as fixed expenses. Remember to divide the fixed expenses into different items such as rent, electricity, mobile phone, savings and monthly payments to your lender. After doing this, you must make an average calculation of your monthly consumption.
Then you can deduct fixed expenses and monthly consumption from your income. The money you have left over is the ones you have available and can potentially spend on debt repayment.
Get a good repayment plan
Now you are ready to get a proper repayment plan. For this purpose, you may want to use a debt repayment calculator . Here you need the following information about your debt:
- remaining debt
- effective interest rate
- fixed monthly installments to the creditor
Research has shown that one becomes faster debt-free if one works with the debt items one by one. Therefore, you must also set up your debt individually, according to the loans it holds.
Enter the information about the loans in the repayment calculator, as well as the money you have available for the month. You must also fill in the date on which you want to start the repayment. After you do this, only one thing remains: choosing the right strategy for your debt service.
Choose the right repayment strategy
You can choose from several different repayment strategies. Which one is best for you will primarily depend on what you are motivated by. The repayment calculator gives you the opportunity to use four strategies.
In the snowball method, you start with the least amount of debt. The snowball method is suitable for those who want a stronger sense of coping in the short term. When you get rid of the smallest amount of debt first, it will be easier to get started on the next one.
The snow avalanche method starts with the loan that has the highest interest rate first. This is the method that will save you the most money. When you get rid of the most expensive loan quickly, you will avoid unnecessary interest payments.
With the highest monthly amount first, you work on the loan that costs you the most in the month in the first place. This will be beneficial when you want more freedom in your personal finances. At the highest monthly interest rate, you will, like the snow avalanche method, get rid of expensive debt first. This strategy will save you money in the long run.
Check if you have as good terms as possible on the loan
Once you’ve set up your repayment plan and selected the right strategy, you need to check one last thing. You may not have the cheapest loan you can get. There is a lot that may have changed since you took out the loan. Then the probability is also great that you can get better terms on it.
The lender will always conduct a credit check when applying for a loan. Here they look at things like your income, existing debt and credit history. If your credit rating has changed for you better, you will almost always be offered a better interest rate.
Also, keep in mind that if you have debt with more than one lender, for example in credit card debt, you may want to refinance it. You will save money both in interest expenses and fees by collecting the debt. You can then use this amount for further debt repayment.
Stick to the plan
To service a loan in the best possible way, it is important to stick to the plan in the long term. Of course, making good choices in everyday life can be challenging. Nobody likes to refuse fun experiences because they have to save money on their debt.
Nevertheless, it is important to keep in mind the long-term savings with a favorable service of your loan. Create a list of things you will be able to realize once you become debt free. You can return to this if it becomes difficult to stick to the repayment schedule.
Also, remember to set up a realistic repayment plan in the first place. If you try to delegate more money per month than you have the capacity to, the likelihood is that you will give up. But with a manageable repayment, you can conveniently manage your debt throughout the repayment cycle.