DUBAI 14 October 2018: Most of us are in debt of some kind or the other – be it for a car, a house or personal need. As long as we are solvent and are able to service and pay off the debt, it is fine. Trouble starts when the debt becomes unmanageable.
Our friendly experts at National Bonds have brought us five tips on how to effectively manage debt – not matter how big the problem is.
Here we go:
1. Get Organised: Organisation is key to any successful debt management programme. Find an easy, organised system to help you keep track how much you owe and to who. Use a simple spreadsheet or online resource to track your debt, identify debt which will affect you the most, and prioritise loans with a higher interest rate.
BONUS TIP: Calculating your Debt-to-Income ratio may help you determine how comfortable you are with your current debt. This can be calculated by taking your total debt figure and dividing it by your income.
2. Pay More Than The Minimum: While the minimum monthly payment may seem like the easy option, it will end up costing you more in the long term. You can save thousands of dirhams in financial charges by slightly increasing your monthly payments.
BONUS TIP: Round up your monthly payments to the nearest 100 – this small increase can drive down your total costs and will make a difference in the lifespan of the loan.
3. Pay Your Bills On Time: Making timely payments is a critical component to successful debt management. Late payments can result in costly late fees and financial penalties – this is one of the easiest ways to undo all your progress. If you cannot make the payment on time, contact your bank or financial institution and ask for an extension.
BONUS TIP: Credit card debt is higher than almost any type of debt. The interest rates on unpaid credit card balances are often between 12 and 18 per cent and can accumulate very rapidly – keep a close eye on this!
4. Break The cycle: You may be tempted to take an additional loan or use your credit card to manage your current debt – this can compromise your personal repayment plan and should be avoided at all costs! Use cash or debit that is readily available to make necessary purchases and find ways to minimize your daily expenditure.
BONUS TIP: This is an opportunity to differentiate between your ‘wants’ and ‘needs’ – being more mindful with everyday purchases can help break the dreaded debt cycle. This could be a great learning opportunity!
5. Don’t Fight The Battle Alone: If you are struggling with financial stress and fall behind on repayments, do not be afraid to ask for help. The longer you wait, the less solutions and options become available to you. Start by approaching your bank and exploring options for debt re-financing. Most banks have a consolidation department that can offer borrowers some flexibility by combining multiple debts into one at a lower interest rate.
BONUS TIP: You can visit a certified financial planner who can help you manage your debt by outlining the necessary steps you must take. Most importantly, do not be afraid or embarrassed to ask for financial assistance.