Managing your finances is essential to obtaining many financial goals, and being in charge of effectively monitoring spending habits is the key to being financially free.

One of the biggest dilemmas when it comes to personal financial management is managing and even reducing debt. For starters, it’s essential to understand that the concept of having debt isn’t all negative. Some debts along the way will be necessary when purchasing a home, land, or car. These big items will be a “loan” and would, in turn, be paid for on an installment basis.

The primary key to managing your debt is to ensure that the amount loaned would be paid for, regardless. Meaning, you shouldn’t spend above your means. Debt becomes ugly and hard to manage when you aren’t aware of your spending habits.

Managing Your Finances to Prepare for Tough Seasons

As the world faces unemployment rates and under-employment becomes rampant because of COVID-19, personal finance management becomes challenging. In light of the pandemic comes a global financial crisis where more and more people are inclined to go into debt.

This is why it’s important to prepare for tough seasons during your financial high. Avoiding debt would mean having enough savings to get you and your family through a period of no income.

It’s also important to cut on unnecessary expenses to avoid going into debt during a crisis. Focus on channeling your remaining savings into expenses that truly matter, such as quality healthcare. These primary steps taken would do you a great benefit in the long run.

Managing Your Debts Step by Step

You can never predict the future, and some circumstances may leave you running with no income at all. Hence, always keep up with your debts.

Here are some steps you can take to easily manage and reduce your debt more effectively:

1. Keep Track of All Your Accounts (and Debt)

The first step into managing your debt and your overall financial state is to be aware of such a state. It’s important to keep track of all your credit card debt, outstanding loans, and other forms of debt you may have applied for to be prompt on payments. As mentioned, some debts are necessary for big purchases, but they become a problem when you cannot take all these.

Hence, make a list of all your current debts and include the corresponding interest rate on each to easily monitor which ones are causing you the most financial strain. Better yet, you can also employ debt management software to easily keep track of them.

2. Mind Your Regular Spending

Debt awareness should inspire you to mind your regular spending habits. There may be some services and items on your day-to-day that aren’t that necessary. Cutting back on these unnecessary expenses can help you reduce and even get rid of your debts a lot faster.

You could cancel your gym membership and transition into home fitness regimens, cut back on luxury items, or make coffee at home instead of buying them to-go. These are just some of the ways you can help rechannel extra funds onto your debt payments.

The accumulation of debt and the stress of meeting payment deadlines may become overwhelming. That’s why it’s best to take the necessary steps and set aside enough of your budget for such debt payment.

3. Employ Debt Management and Credit Counseling

The main objective of debt credit counseling agencies is to help you manage your finances enough to pay your debts. These professionals can negotiate with creditors and lenders on your behalf to find a compromise on debt payment and monthly premiums.

Commonly, credit counseling agencies help in debt consolidation, where all of your debt is put into one place, making it easier to handle. Moreover, this would also bring about lower interest rates and fees.

4. Plan a Debt-Reduction Strategy

There are various debt-reduction strategies available for you as the debtor. Aside from minding your spending and keeping track of debts, it’s important to outline how you want to go about paying your debts.

The two most common tactics are to pay off the balances with the highest interest rates first or the lowest interest rates first. The former will save you more money in the long term, but the latter will assist you in maintaining traction on your payments. Whichever strategy you choose would surely set you on the right track in the reduction of debt.

5. Build An Emergency Fund

No matter your debt status, it’s crucial to have an emergency fund to fall back on. This is especially important as these savings would help you avoid getting into debt again.

Getting into the habit of allocating a certain portion of your monthly or annual income into emergency funds is indeed the best way to stay out of debts.

Of Spending Habits and Due Diligence

While it’s ideal to avoid having any kind of debt at all, somewhere along the way, it may be needed. The key is developing good spending habits and always paying your debts and loans on time to avoid penalty fees or absurd interest rates.

While it’s attractive to splurge on an ideal lifestyle, it shouldn’t have to leave you in intense debt. The next time you think about spending beyond your means, think about the complexities of debt management and reduction.