5 Top Tips on Effective Debt Management

Why managing your debts is importantWhether you are currently paying off a single loan or multiple loans, it is important that you make the repayments: On time, Every time these are due In the full amounts that you are

billed for (as opposed to paying the minimum balance)

This can help you to build a good credit score, which can then lead you to access credit in the future should you require it.

Why managing your debts is important

Let’s suppose you had taken out a personal loan, you use your credit card to make purchases regularly and you also have a mobile phone ‘pay monthly contract’ to pay off.

If you struggle to pay these off every month, or don’t have much money left to live off and thereby use your credit card or overdraft to get by, then this can be a problem.

This is where some sort of remedial action needs to come into play to help you get out of debt, which is why we have put together the following 5 top tips that can help you manage your debts effectively…

1 Consider debt counselling

Debt is something that can affect the mental and physical health of consumers, including symptoms of stress, anxiety, depression.

There are various charities who help people struggling with debt by providing debt counselling sessions.

These sessions involve financial prioritising and debt consolidation.

Find out if you qualify for a debt management plan2

You would need to meet the following criteria in order to qualify for a debt management plan: Your debts are unsecured, i.e. you did not take out any of the loans

using your property as a form of security for the lender. Your debts are non-priority based, i.e. these refer to debts where if you

fail to make a repayment, the provision of an essential service (such as electricity, water, gas, etc.) will not be affected.

Debts owed on credit cards, store credit cards, mail order catalogues, bank overdrafts, payday loans and unsecured personal loans are usually considered to be non-priority forms of debt.

Create a debt management plan – and stick to it! 3

Your debt management plan is usually drawn up by a debt counsellor who can either be from your bank or a debt charity.

A typical debt management plan factors in what your priority debts (i.e. mortgage, tax bills and essential services) are and what your average monthly household bills are.

The next step is to calculate which of your debts can be classified as non-priority.

Depending on how much debt you have, you may then be advised to take up a debt consolidation loan.

Understand debt consolidation loans 4 A debt consolidation loan involves

putting all your non-priority debt together and paying off in the form of one large debt, as opposed to several smaller debts.

These repayment amounts are usually decided on the basis of how much you could afford to pay off per month, so that you can make the repayments on time and not have to pay any late fees.

However, it is worth bearing in mind that it could take you longer to pay off your consolidated debt as you may be paying smaller amounts each month.

Read the fine print before you sign up!5 A debt management plan is not a legally binding document. This means

that neither you nor your creditors are obliged to follow it!

You may end up paying more money than you had borrowed in the first place as higher interest rates could be included in your monthly repayments.

It is not necessary that some or all of your creditors will accept your debt management plan.

Signing up to a debt management plan does not mean that you have become debt-free. However, it can certainly be the road to it, as long as you pay the reduced monthly instalments on time and stick to the repayment schedule!

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