Finding yourself in a position of debt can be extremely stressful. When the bills are piling up and you are unable to make the repayments on existing loans, you enter a downward spiral further and further into debt. This is not only much harder to work your way out of, but will significantly hurt your credit score in the process, leaving it harder for you to take out any future loans. This is where debt management comes in. This article will look at ways you can get back in control of your debts and answer the question: what is debt management?
Good Debt Vs Bad Debt
While all debt entails borrowing money you don’t have from a lender, what many people don’t recognise is that there is a huge difference between good debt and bad debt.
Have you ever heard that old saying, “You need money to make money”. Many people borrow to get themselves ahead. Whether they are investing in a property for their future, or a business idea that they hope will take off. This type of debt is good debt. The borrower is able to make their repayments on time, and if the risk pans out, will increase their net worth in the process, leaving them better off because of this loan.
This is when money is borrowed to purchase depreciating assets. For example, if you take out money for a car loan, a holiday, to get you through to your next payday, and more, this is considered a bad debt. There is no way you can earn money off these investments, and if you are unable to make the repayments, it is all too easy to spiral into debt with this.
More often than not, it is bad debt that leads to future financial issues. If you have found yourself unable to pay back your bad debt, then you might be questioning what is debt management? And how can it help you?
Getting Out Of Debt
The most important thing to do when it comes to debt management is to make a start. Any type of action is a positive one when it comes to trying to get yourself out of debt. You have to start somewhere. Take a look at where you are sitting financially and whether you are able to continue paying off your debts on time.
If you are managing to make the repayments, then your best option is to tighten up the belt buckle and continue to remain on top of this. It will reflect positively in your credit file and give you the best chance of taking out any future loans.
If you are unable to make these repayments, this is the time to look into debt management. So, what is debt management?
What Is Debt Management?
Debt management plan looks at your financial situation and geta you back on track. If you have multiple loans, you may consider bringing them together with a debt consolidation loan or finding better interest rates. The idea is to get you the best plan moving forward to get you back on track financially. Here are some of the strategies you might adopt:
- Additional repayments: if you have the means, making additional repayments on your loan can help pay it off quicker and pay less interest in the long run.
- Debt consolidation: this is the process of bringing all your existing debts into one new debt to help manage the repayments and ease the process.
- Start with high interest: by starting with your high interest loans first and repaying these, you can then move onto the next ones and pay less interest overall.
- Start with non-deductible debt: this is a loan that has been taken out for a bad debt mentioned above. It is a debt that won’t produce income, so it is best to get this one paid off first.
Debt management can also involve making an unofficial agreement with your creditors to pay back your debt over a set period of time. Often, if you are having troubles making the repayments, it involves lengthening the time of the loan, so you have longer to pay it back. This is something that has to be agreed upon between you and your lender and is based on individual circumstances.
Setting Up Your Debt Management Plan?
Not sure where to start? When it comes to putting in place a debt management plan, it is often best to seek professional advice. If you are looking for a debt management plan that works for your individual circumstances, then get in contact with the specialists at Australian Lending Centre today. We can look at your situation and offer the best advice based on your needs.