Debt Management

At some stage or the other we see that our expenses overtake our income and unless care is taken you can find yourself in a very dangerous financial situation. When this goes on for a considerable period of time, you get into a situation where you become debt ridden since you end up borrowing to meet your many expenses without actually thinking about it . This habit may find you owing money to other people, banks or other financial institutions and you may be constantly wondering how to cope with such a state of things.

We hear of people getting into impossible situations like this when they are unable to pay back their loans and debts and often committing suicide or losing everything they had earned during their life time. It makes you think whether such a situation could have been avoided with some forethought and careful planning. According to financial experts - this can easily happen when a person loses track of his/her expenditure unless care is taken.They start borrowing which becomes a habit and before you know it, you are steeped in debt. However, even though it is  difficult  to face , it is not an impossible one with no way out and, one need not take any drastic or extreme step without looking into all the options that are available.

At the same time unless you have a firm plan of action it is not easy to overcome this situation and it is important to consider all of the debt solutions available to you before making a  decision on which option to take and which is best suited to you. Once you come up with an efficient Debt Management Plan, you could reduce your debt repayments to an affordable level each month and stay with your plan until you come out of it successfully .

Some effective measures

1,Make a list - most people find that although they have a plan of action, they have difficulty in keeping up their debt payments and also take care and balance out their daily expenses. So it is essential to put everything down on paper . Once that is done it becomes easy to analyse the situation and take proper measures. When you make a list, dont forget even the smallest detail since, even they have a way of multiplying with time.

2, Increase your earnings – If this is possible ,by taking up extra work, it is advisable to do so until you come out of the situation. Many people never think of increasing their earnings even when they have the opportunity to do so. There are times in life  when you have to do things that you never thought you would.

3, Make a budget - It is important to make a complete household budget and be aware of all your expenditures. This helps us limit and also prioritise our expenses . Once you allocate money for various expenses , what is left is relatively easy to manage. Here, it is also useful to separate the routine expenditure from the unexpected expenditure.

4, Reverse the trend - When your debts accumulate it is but natural that you have difficulty in paying back and it is very likely that you get into a much more difficult and stressful situation unless you take timely measures . When this happens you have to take immediate action and try to reverse the trend in your favor instead of getting sucked into the vicious circle of over spending and getting deeper into debt.

5, Take stock of your situation – To reverse the trend in your favor, you have to analyse your current financial situation taking into account every single financial commitment you have, which includes the interest rates that you pay on your bills, total amount you owe and the minimum payment on each account. To this you also have to add the expenses involved for your day today living.

6, Cut down – Having made your list and having made a complete budget,  you have to cut down on any unnecessary expenditure that you can forego like going to the movies or eating out, going on a holiday, shopping and so many other things that one can easily give up.

Think of alternate solutions like eating more often at home, postponing your holiday plans and totally cutting down on impulsive buying which more often than not eats into one's budget.

7, Stay committed – Having done all the above, now is the time to act upon it and stay committed. Nothing can work nor show any positive results unless you stick with your plan of action  and execute it. In the beginning it may not seem much but you are bound to notice the difference within a matter of months.

8, Fine tune your budget on a weekly basis – You should be on the look out all the time to cut down further and also add on as and when possible. There is always scope for making changes, adding on and deducting certain things.Like for example :- You may realise that you are able to get cheaper vegetables at a local market which is close by and walking to the place further cuts down petrol or transportation cost.

9, Seek expert help - When none of these are able to help you, it is advisable to get professional help since, they are able to give you the right kind of advise through a Debt Management Plan. It is essential that you take expert advise when you are unable to manage your financial commitments even after cutting down expenditure and simple budgeting. It clearly shows that your financial situation is beyond you and you need professional help to come out of it.

How do they help?

Debt Management programs are run by almost all major financial institutions and they help you reduce interest rates and monthly payments legally thereby giving you breathing space. What they do is buy time, so that you can readjust your payment schedule and plan your repayment. The very fact that they are there lending you support and giving you the right advise ,gives you the much needed confidence and security to face the situation.

When you get time, it automatically reduces your stress levels and you are able to take decisions that help you in your future course of action.

An efficient Debt Management Plan includes measures which help you reduce your debt repayments to an affordable level each month. This is done by the professionals you consult. Once you take their advise you have to be firm and stick to the plan and be consistent. Payments will have to be made on time since you make a commitment to do so. If you don't make your payment on time, your creditors could still make demands for their money and more than anything you are legally bound to do so.

So, once you consult a debt management expert it is in your own interest that you take his/her advise and do what he or she says. They deal with many such situations and know how to come out of it without too many burnt fingers.

A few useful tips

1, The first and the foremost thing to do is to combine all your debts into a single monthly payment , this is done by averaging the interest rates. It is not difficult to do so and once you learn, it becomes easier to deal with your budget. This method helps one to be clear about the outgo each month and also make a steady payment to all the creditors. I have known people who are paying back some of the creditors while dodging others and feeling guilty about it and so on...

2, Once the terms are accepted you have to stick with it especially regarding the payment schedule to creditors which has to be consistent .When you are regular you can recover from your debt problems very quickly. Another advantage is the trust that you build with your creditors when you are regular in paying back.You may even see some reduction in interest rates or at least get more time if and when needed without any hard feelings from their side.

3, Keep an account of all your payments towards your debt accounts. This is very essential since you know where you stand and whether you are able to make any changes that can help you pay back your creditors earlier. Like for example :- If you receive some cash gift or a bonus, it is a good idea to give the lump sum towards the loan amount, thereby reducing your interest rate and also monthly outgo towards the loan(debt).

4, Trying to enhance your income if possible is the best solution there is ! Increasing your repayment amount can save you a lot of money which otherwise you would be paying towards interest and this can be done only when you have an additional income.

Personal experience

I have known a middle class family who had fallen on hard times – the husband although had not lost his job, had a drastic pay reduction and the family was struggling to cope with the situation.However,  the lady of the house had taken some wise decisions and more importantly the right approach and attitude which made them pull on quite well.

Since the house was their own, they rented out a room so that they could supplement their income. The lady of the house , with the help of the other members including her in laws had made a note of every single expenditure involved in running the household , cutting down all unnecessary expenses..

She also had devised a simple method of saving - Every day when she measured out the required quantity of rice and dhal , she would take out a handful and put it aside in separate tins for any future emergency. The children were fed first, since they needed more food as they are growing , whereas, the rest of them could afford to eat less and become healthier. This kind of approach is what sees people through when they are faced with adverse conditions.

Managing money is important

As we all know the income we earn is the Inflow and the expenditure constitute the outflow. When both these don't match , it could prove to be very stressful for a person, often leading to a cash crisis. If this state of affair continues month after month, it becomes very difficult to find a suitable solution and get out of the stressful situation. So, it is important to prioritise our expenses .This ultimately helps us in optimising the usage of the money we have earned.

Since cash flow is  limited, we have to be conservative with our expenditure because spending too much money and feeling guilty later is not going to help. Having a mental budget each time you decide to step out to make a purchase or go out shopping definitely helps in curbing unnecessary expenditure . Once you get into this habit of mentally being prepared as to how much you are going to spend on what , it becomes easier to manage your money.

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