Nobody likes to hear the word ‘debt’- especially in a new year. Yet, at some point in our lives, we will take a loan to offset certain financial obligations and carry them forward year after year. While there is nothing wrong with borrowing money, it is paying back that is usually the problem.
Debts can get you into trouble, especially if they are unplanned and they are allowed to escalate out of control. Whether large or small, owing money can be uneasy. On the other hand, debts are a useful tool to get ahead in personal endeavours. From mortgage loans to business start-ups, debts aren’t as bad as they seem. Even many successful multinationals are built on the foundation of debts.
There are strategic ways to approach debt and make it work to your advantage. All it takes is financial discipline and savvy budgeting. Here are some tips to do so without sacrificing your standard of living.
- Good credit card practice
Watch how you use your credit cards because they are a fast way to enter a debt trap. Take advantage of the store’s loyalty cards. Big retailers usually give considerable discounts on purchases if you register with their loyalty card scheme. This can result in significant savings on your household items. Some banks also offer similar discount cards, look out for them.
- Student loan debts
According to a study by Sutton’s Trust, UK graduates have the highest student loans. At £44,000, it is almost twice as much as their American counterparts. Student loans may seem overwhelming but with the low interest rates and tax-deductible interest, they could be considered ‘good debts’. The following tips can make your debts easier to manage:
- Map out your career and earnings with a loan repayment program early
- Pay off your private loans first
- Study your repayment options
- Start a good savings culture
- Take advantage of student discount programs
- Mortgage debt
The average total debt for each UK household, including mortgages amounted to £55,982 in November last year. While the present economic uncertainty makes it seem easier to rent a house than buy one, the current interest rates are favourable. You can manage your mortgage debts by:
- Keeping your house expense ratio in order
- Considering a variable mortgage rate plan
- Leveraging tax deductions where possible
- Selecting a refinancing structure where feasible
Even before you go down the route of procuring a mortgage to buy a house, ensure that you’re using the mortgage planning tools online to get a deal that is suited to your income. This will prevent mortgage debt from occurring in the first place.
Good financial habits
- Pay your bills on time each month
Avoid paying your bills late as they can accumulate and make it even harder to offset.
- Create a payment schedule
Draw out a schedule to help you organise your payments to prevent falling behind.
- Budget your income and expenditures
There are automated budgeting apps that help you monitor your expenses and earnings. Choose a suitable plan and stick to it.
Your debts need not be a cause for worry. So long as you remember to take control of your finances, everything will be fine.