Few things in life are as divisive as debt. It’s something that we all have — but it’s also something that we don’t like to talk about.
It’s not just because talking about money is uncomfortable. It’s because debt is so complicated. There are different kinds of debt, each with its pros and cons. Some types of debt can be good for you, while others can be devastating. And even though many people have the same kind of debt — student loans, mortgages, or loans — everyone has a different story about how they got into it and what they’re going to do next.
The word itself has a stigma. It conjures up images of people living paycheck-to-paycheck, struggling to make ends meet. Debt is often associated with poverty and the inability to afford the things we want or need.
But this is not the case, many people, companies, and countries have debt in different forms. It is a universal problem.
How to manage debt and achieve financial freedom
The key to wise debt management is to prevent it from getting out of control. The first step is to identify the type of debt you have and the interest you are paying on each loan. It may also be beneficial to understand how long it will take to pay off your debts and how much interest you will pay over the course of repayment.
Here are a few tips to help you on your journey.
Know Your Loans
You should know what type of loans you have, including the interest rate, monthly payments, and total amount owed. If possible, write down all your debts in one place so you can easily refer back to them when needed. This way, if there are any changes or updates to your loans (such as interest rates), you’ll know immediately instead of waiting for an annual statement from your lender.
Set-up automatic payments
Set up automatic payments. If you get paid once a month, set up automatic payments for any bills due. That way, you won’t be tempted to spend the money before it’s due, and you’ll never miss a payment.
Pay Down High-Interest Debt First
Loans with high-interest rates are often the most expensive debts because they pay off slowly over time. You may want to consider paying off these debts first before taking on lower-interest expenses like car loans. Once you’ve paid off these debts, focus on getting rid of expenses like utility bills until you’ve paid off everything else.
Don’t neglect your debts or merely pay the minimum: Because interest accrues on top of the principal owed, paying the minimum payment on each account can cause your balances to grow quicker. Do not pay off one loan with another; you will pay more interest than you owe.
Sometimes it’s hard not to want everything right away. But if you want to achieve financial freedom and stay out of debt forever, then here are some tips for how to manage debt wisely:
Once you get a handle on your debt, you can start saving for retirement and other goals. You’ll have more money to spend on things that matter to you.