Life is more expensive now than it was last year. The current cost of living crisis is characterized by high inflation and labor shortages, as well as supply chains caused by the pandemic.
Rising bills and prices are forcing many people to borrow more or leaving them struggling to repay their debts.
Spending more than you can afford can be caused by a number of factors and is usually due to our daily lives and situations that many of us face.
Living paycheck to paycheck can leave you in a precarious position when faced with a large bill or unexpected payments. Poor money management can cause you to pay off your debt before it hits you.
Debt affects a person financially, emotionally, mentally, and physically. This can lead to anxiety, depression, and mental health problems. The following steps will help you manage your personal debt during a time of high living costs.
Understand your debt
Bad debt habits can harm your financial health and prevent you from reaching your goals. Your ability to make smart debt choices means you know when it makes sense to borrow.
Depending on how you use it, debt can help or hurt your financial future. If you borrow money wisely, debt can be a valuable tool to help you manage expenses over time, but if you use debt carelessly, it can threaten your financial future.
I encourage all of us to make smart decisions when it comes to borrowing money, especially if it can help you set current or future financial goals.
Taking on too much debt or borrowing money just because you have it may not be the best decision.
Reduce your personal expenses
Cutting unnecessary expenses is an important part of getting out of debt. Look at your regular expenses and determine which are essential (such as food, housing, and allowances) and which are non-essential (such as entertainment or clothing). Cutting back on your unnecessary expenses can give you extra money to pay off debt.
It’s important to know where your money goes by writing down what you spend during the week so you can track your spending and be more frugal.
It’s important to create a budget that tracks both your income and your expenses and gives you a clearer picture of how money comes in and goes out, helping you assess your financial habits over time to see what patterns emerge.
Plan a repayment strategy
Plan your repayment strategy by determining which debt you need to pay off first, rather than putting extra money toward any debt.
Most people target their smallest amount of debt first, not high-interest debt. It is important to note that you prioritize debt payments over other expenses.
Remember, before you focus on getting out of debt, you need to make sure your basic living expenses are covered.
Pay your debts on time
Time management and debt management often go hand in hand, as paying things when they are due often helps you avoid things like late fees and extra interest fees.
It is important to note that late payments can affect your ability to borrow money in the future and result in a bad credit history.
Consider setting up alerts to remind you when your payments are due or to let you know if you’re eligible for direct debit. Paying your bills on time can be considered one of the most important factors in managing your financial life.
It is important to note that some companies and services charge a late fee just a few minutes after payment. It’s important to avoid late fees, as they can make it difficult to manage an already tight budget.
Contact a financial advisor
Meeting with a financial advisor can help you understand all of your options for getting out of debt, as well as create long-term strategies for building wealth and managing risk.
A financial advisor will guide you in choosing the best strategies for your situation.
They can support you in monitoring, managing and rebalancing your investment portfolio and provide useful advice on many other financial matters and decisions.
By Andrew Ayiku