When you are looking to deal with and manage your debts, knowing where to start and which debts are best prioritising can be overwhelming. With the cost of living crisis affecting more and more people, many are looking for ways to get financial freedom and better manage their debts and other outgoing finances after finding themselves in debt for the first time, or amassing to already high debt levels. Let’s take a look at 3 practical ways in which you can better manage your debts this year.
Assess Your Current Finances
The first, and most important step, when looking to manage your finances is to begin by sitting down and thoroughly going through your income, expenses and assets and then look at your debts. Work out what is left over from your income once all your bills and essentials are covered. You can then use this figure and information to create a budget.
Once you take a close look at your finances, you will likely find that there are places where you are perhaps spending more than you think which can be reduced, or are paying for subscriptions which you might have forgotten about. This will make it much easier for you to plan your future and take more considered steps towards managing your debts – you may find that by cutting down on some things, or cancelling subscriptions you no longer need, you can pay off a bit more of your debts each month.
This approach is one recommended by a number of financial debt advisors as one of the first and best steps to take when looking to better manage your finances.
Prioritise Your Debts
There are some different methods when it comes to managing and prioritising your debts.
One method you could use to prioritise your debts is called the debt snowball. This involves the process of paying your debts off gradually, starting with the smallest debts and getting those paid off, before working up to the bigger debts. It includes paying the minimum amounts each month and then working through them one by one, building up a snowball effect in becoming debt-free.
Another method is the debt avalanche method. This approach works by focusing on paying off debts that have the highest interest rates, whilst being sure to make the minimum payments on any other debts you have. The debt avalanche method is best for interest payments, although it might take a bit longer in order for you to see the results.
Know When To Ask For Help
Managing and living with debt can be hugely stressful and overwhelming and, at times, it can get to the point where it feels like too much to handle. It might be that you need someone else to help you decide the best course of action for managing your finances, or offer an alternative solution such as a debt management plan or debt relief order (DRO) which can work better as a repayment plan for your debts. If you ever feel like you need help and support, then there is plenty of professional advice available.