It’s not uncommon for people to have multiple debts and lines of credit at some point in their lives. Whether it’s credit cards, loans, car finance or bills, or a combination, the pressure on your finances can really start to add up.
But don’t worry – tackling your debts doesn’t have to be complicated. Taking control of your financial situation starts with understanding your own circumstances and finding a solution that works for you. With the right approach, you can reduce the stress and make meaningful progress in clearing your debts.
Understand and prioritise your debts
The first step in managing your debts is understanding what you owe. Gather all your statements and make a list of your debts. Include details such as the interest rates, minimum payments and any fees. This gives you a clear picture of where you stand and helps you make informed decisions.
Next, prioritise your debts. Focus on paying off high-interest debts first, as these will cost you more the longer they’re outstanding. For example, if you have credit cards with high interest rates, it’s often worth tackling these before loans or contracts with lower interest rates. Reducing high-interest debt should save you money in the long run and free up more cash for other obligations.
Go back to basics with budgeting
Budgeting might feel like an obvious step, but it’s often overlooked when you’re dealing with debt. Start by reviewing your income and expenses. Track your spending for a month to see where your money goes. Cut back on unnecessary expenses, even temporarily, to create room for debt repayments.
A budget helps you allocate money to different areas of your life and gives you the ability to see if and where you’re overspending. It’s also essential for understanding how much you can afford to pay each month without sacrificing your basic needs. Aim to make your repayments as consistent as possible, even if the amounts are small at first.
Develop a repayment plan
Once you know what’s coming in and going out, develop a realistic repayment plan. This plan should focus on paying off one debt at a time while keeping up with the minimum payments on others.
You might want to consider the “snowball method” (starting with the smallest debt and working upwards) or the “avalanche method” (tackling the highest-interest debts first). Both approaches are effective, but choose the one that feels more achievable for you.
If you want to simplify the process, it might be worth reaching out to some debt consolidation lenders who can help streamline your payments. Consolidating your debts into a single monthly payment makes managing your finances simpler and could even reduce the interest you’re paying overall – although this isn’t always the case.
This isn’t always the best option for everyone, so make sure it suits your financial situation.
Build good habits for the future
Once you start making progress on your debt, it’s crucial to build healthy financial habits to prevent future issues.
Try to avoid accumulating new debt by living within your means. Set aside an emergency fund so that unexpected expenses don’t derail your progress. Over time, these habits will help you stay on track and maintain financial stability.
Managing debt isn’t a one-size-fits-all approach. What works for someone else might not be right for you, and that’s okay. Focus on your individual situation, be patient with yourself, and take steady, practical steps towards a debt-free future.
