The word debt sends chills down the spine of every individual. Why would it not, after all? It has swallowed lives and sabotaged futures of innocent and unsuspecting people. It is that human-made peril that can push the healthiest of minds to the brink of insanity. Therefore, it is crucial that every individual has knowledge about essential finances, personal investments, and debt management. Think of debt-management as a life skill, one that you cannot do without. The moot point of this article is to bring to you all that you need to know about debt and debt management. Precaution is always better than cure. Therefore, if you want to live a life where you do not have to break your head over repaying your debt, read on!
What Is Debt Management?
Debt management is one such skill that every individual needs to acquire in his /her life. Let us rephrase the sentence a little bit to offer a more comprehensive definition of debt management. Debt management is one such skill that every individual and every organisation (government or otherwise) must inculcate in their finance management programmes so that they can be prepared to deal with any adverse financial situation. You must understand one thing when it comes to debt. No matter how consciously and cautiously you spend your money or plan the finances for your organisation, you could still be caught up in the muck of debt. This is something which you cannot always have under your control.
For instance, you might have done everything right in your life- saved up real good, gotten yourself and your family life and health insurance policies, planned for your retirement and saved up for your daughter’s education. However, could you put a pin on it and say that you or your loved one would never fall victim to a disease whose treatment requires more money than what your health insurance promises to provide? So what do you do when such a situation comes up? You do not resign to your fate, nor do you give up. You start looking for alternate ways of arranging for that extra cash. You might have to apply for a loan from your bank or borrow money from your friends. Therefore, the debt cycle is sometimes unavoidable. It is not possible to be so certain about life and our investments. However, what you could do is be aware of the ways in which you could effectively manage your debts. You could, for example, use the debt to income calculator to figure out the math of debt to income ratio and plan your repayment schemes accordingly. The debt snowball calculator can also ease such calculations for you.
Let us take another example here. Say you are an owner-operator, and you know everything there is to know about owner operator financing. However, that does not mean that you will never be in need of extra cash. You could be your own boss, but even bosses require money to keep their businesses running. Similarly, you might have just started a company with your years of savings; and all your investments might be going really well. But you do not just stop there. Being an entrepreneur, you would definitely have a greater vision for your company. However, growth requires steady cash, and you cannot always depend on the company’s own wealth to scale your business. Here comes in the issue of applying for loans and managing the company’s debts. There are several ways you can get an idea about your company’s leverage and equity, for instance, the debt to equity ratio. Once you or your hired financial team know the ways to carry out these calculations, it becomes a lot easier to manage the demanding debt situation.
A Look into Some Effective Debt Management Strategies:
Now that we have acknowledged the fact that it is not always possible to avoid debts, it is time that we figured out ways of not being held up in the debt cycle. Here is how you could do that.
You have got to be smart about the maths involved in your life, no matter how much you dread it. Being aware of your income is not the only thing you have to have at the back of your mind. You also need to plan your budget constraint, log in all your expenses, calculate how much you owe to other people and financial institutions and calculate how much you can spend in a month. This is the healthiest way to plan your finances and handle the debts that you have at hand. The debt snowball calculator is also another brilliant way to successfully determine how to repay your debts, starting from the smallest amount and then snowballing into the heavier ones.
There is no hard and fast rule about you working at one job. There are several freelancing jobs available where you could use your talent and earn more money. Your primary source of income will obviously go towards paying the important bills. It, therefore, makes for an excellent strategy to use the income from your second job to repay your debts. It does sound difficult to find other jobs, especially when you are in one. However, there is no harm in trying; and once you get another freelancing job, nothing like it!
This point is for companies which are looking for ways to manage their debts. Like it has been discussed, when you have a greater vision in mind, you need to seek refuge in lenders and creditors. Therefore, working with a debt-restructuring firm might be the right decision to make in the early stages. They require a minimal fee from your side, but their counsel and process of working can save you from bankruptcy or a tainted reputation in the market. These firms talk to the creditors and lenders on your behalf and restructure your debt repayment plan, so that you get some more time to arrange for funds and clear your debts.
Wrapping Up the Debt Debacle Debate:
The statement might be a cliché, but there is no denying its utility- for every closed door and lost opportunity, there are windows that open up. All you have to do is make use of them and allow fresh ideas to fill your brain. Debt management skill is the need of the hour, and you must make it a point that you use the knowledge and wield dire debt situations to precision.