Debt is a common financial obligation that many people face. It refers to money borrowed from a lender that must be paid back over time, usually with interest. Debt can take several forms, including credit card debt, personal loans, and mortgages.

Managing debt can be a significant challenge, especially when drowning in a sea of bills and an increasing cost of living. High-interest rates, administration fees, and minimum monthly payments make it easy to feel your debt is out of control. However, with professional guidance from a financial adviser, you can take control of your debt and work towards achieving your long-term financial goals.

Understanding the various types of debt and the associated risks is important before taking on any new debt. For example, credit card debt often comes with high-interest rates, making it difficult to pay off quickly. In addition, personal loans may require collateral, including a home or car, to secure the loan.

Understand your budget and cashflow

A way to free up money and pay off debt is by reducing expenses. First, look at your monthly budget and identify areas to cut back.

Reducing expenses can be challenging, but it’s an essential step in managing debt effectively. Focus on what is a need vs what is a want. By freeing up more money, you can improve your cashflow and put more towards paying off your debts each month. The benefit is reduced interest payments as you pay the loan off faster.

Alternatively, increasing your income is another way to pay off debt faster. For example, consider a side hustle like driving for Uber or asking for a raise at work. You could also look to sell items you no longer need.

Another option is to ask your loan provider for a discounted rate – you don’t know if you don’t ask.

Create a debt management plan

To effectively manage debt, create a debt management plan. This plan should include all debts, including the outstanding balance, interest rate, time frame remaining and minimum monthly payment.

Once you understand your debt, you can create a strategy for paying it off. Your financial adviser can help you strategise your approach to repayments.

Consolidate your debts?

Having numerous debts can result in paying several administration fees and interest charges. Merging all your debts into one loan may lead to reduced interest and fees and assist in saving you money. In addition, consolidating your loans may make it easier to handle your debt as you will only have to make one payment rather than managing multiple loan repayments simultaneously.

Pay your debts on time

Time management is an important aspect of staying on top of and managing any debts. Ensuring that repayments are made on time can help you to avoid incurring late fees and added interest charges. The other downside of late payments is the impact on your overall credit rating, which may impact the ability to negotiate a lower rate or obtain a new loan.

Consider creating notifications that prompt you when your payments need to be made, or investigate if paying through direct debit would benefit you..

Stay motivated

Managing debt can be a long and challenging process, but staying motivated is important. Celebrate the small victories, such as paying off a credit card or loan, and focus on progress rather than how much you have left to pay. If charts help you achieve goals, plot the remaining loan and track it through to completion – note the original path of the loan and track with the additional payments to show the savings being made.

It’s also essential to avoid taking on new debt while working to pay off existing debt. Try living within your means and avoid overspending, even if it requires making sacrifices in the short term.

Managing debt requires a combination of strategies, including creating a debt management plan, reducing expenses, seeking professional help, and staying motivated. Taking proactive steps to manage your debt can improve your financial health and help achieve your long-term financial goals.

If you’re looking for professional guidance to manage your finances and investments, our team of financial advisers can help create a holistic plan to manage your debt, increase your savings, and achieve your long-term financial goals.

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.