Debt is not universally bad. Some debt is good, useful, or worth having on a balance sheet. Whether the debt is good or bad depends on the type of debt and how it is being used. If you borrow sensibly and repay strategically, you can use the money to positively affect your financial situation. Reckless spending and too many debts can get you into extreme financial trouble with a long road to recovery. Here are some tricks to keep your debt in control:
Labeling debt as ‘good’ or ‘bad’
It is a good practice to look at all your debts and sort them as good or bad. An example of good debt is a secured loan at a low-interest rate. A bad loan could be a credit card, where you pay a high-interest rate.
Rank your bad debt
Rank your bad debt according to their respective interest rate and not by their total balance. Your bad debt list may have some loans that require more frequent repayments than the others. Make those a priority.
Plan to pay off your high-interest loan first
After ranking your debt, strategize about how to get your massive debt to a balance of zero. Divide your payments equally in all your debt accounts. Pay the minimum on your less bad debt and put your maximum money towards paying down the worst debt.
Go for a debt consolidation loan
You can merge all of your debts into one account through debt consolidation. Take a personal loan for debt consolidation at a low-interest rate, pay off all your debts with the loan, and repay only the loan you took to pay off the other loans.
Have an emergency fund and earn extra money
Create an emergency fund that you can use whenever financial crises occur. Remember that this fund should only be accessed when there is an actual emergency and not to satisfy your unnecessary needs. If your income isn’t enough to get through the month, then rather than digging into your emergency cash, choose to earn more. Take up freelancing projects, work on weekends, work overtime, etc. to increase your income.
Almost all of us have debts, but there are only a few who can manage debt correctly. The tips mentioned above can help you to take control of your finances and work towards paying off your debts faster.
Laila Azzahra is a professional writer and blogger that loves to write about technology, business, entertainment, science, and health.