Targeting Your Highest Debt Is One of the Few Smart Strategies to Manage Your Debt

Managing your debt is not only about paying up your monthly bills on time. It is more important to manage what remains after paying these bills up. You will need to follow a few strategic and smart ways to manage and pay off the remaining debts to reduce the burden and enjoy your financial freedom to the fullest.

Targeting Your Highest Debt Is One of the Few Smart Strategies to Manage Your Debt 1

There is no wisdom in swapping debt liabilities from one to another. Yes, you can reduce your education loan by adding it to your credit card debt while paying it off but that will increase your burden on the other instead of reducing it. You will simply have a reduction in the number of debts that you currently have and not in the amount of debt outstanding.

Moreover, different types of debts have a different rate of interest and therefore you must be very calculative while making such switchovers. If you are not, you may even end up with a higher burden of loans that carry a higher rate of interest and pay more eventually. This is where things become complicated and risky as well.

Start With Your Highest Debts

The primary objective of paying off a debt is to have a sense of satisfaction. This will further lead to complacency and if you are not careful during this time you may fall into the trap of further debts. However, if you are strategic, you will not have to face such situations and to start with you should target debts that carry the highest rate of interest.

  • Always believe in setting small and achievable goals if you want guaranteed success in debt management. When you accomplish each goal at a time you will have more confidence and satisfaction and reach your ulterior motive of attaining financial freedom.
  • When you clear off the highest debt it will undeniably have a positive effect on your financial status and health. You will have more money in hand left as you will not have to pay the highest EMI the next month.
  • You can now focus on the next higher one now and continue this step by step approach until you get rid of your entire financial debt.

Of course this will take time and therefore patience and perseverance is the key to achieve a debt free life.

Control Your Credit

You will have to take proper control of your credit and the best way to do this is to eliminate unnecessary expenses from your budget list. Do not ever think that the credit card is your friend. Most people make a mistake and consider it to be a free purchase when they use a credit card. In fact, you are not only paying the cost of the item but are also paying a significant fee for such services that provide you with liquid money so easily. Add to it, if you fail to pay the monthly bills on time there will be an interest added to your outstanding amount which is not less than 18% if not more.

However, most credit card issuing companies offer an interest-free payment option if you can pay the amount in full within a stipulated time which is not more than ninety days and even less. This seldom happens as you tend to either forget the time limit getting occupied with other commitments and financial obligations or are unable to arrange the fund required to make the full payment within this stipulated time.

Assets and Liability Ratio   

This is a cardinal rule which all banks and financial institutes follow while lending money to you. Even the insurance companies and pension funds use this ratio while evaluating their policies and you must also do so in managing financial debt.

  • This is the ratio that helps the lenders to find out the difference between your assets and liabilities. It enables them to know whether you have enough assets in hand to meet with the debt requirements in case you fail to make payments on time and fully. It is actually a tool to determine your borrowing capacity.
  • Use this ratio to find out the amount of your liability and equity. This will help you to know whether or not you have to refinance your house for a long-term debt or your credit card for a shorter period, whichever is a viable option.

Have Liquid Cash In Hand

Apart from prioritizing your debts and finding out your repayment ability, there are also a few other effective strategies to follow for quick and effective relief from your debts.

It is best to have some liquid cash in hand so that you can pay a couple of monthly installments on time when your financial status is in a vulnerable situation. Such contingency funds for such emergency situations will provide you with some additional time. Without having to worry about the monthly bills, you can focus on ways in which you can revive the health of your finance.

As this will not happen overnight, the contingency fund will take care of the monthly bills till the time normalcy is restored.  Therefore, build the practice of savings in you and make sure that you save this amount in a separate amount, preferably escrow. This will prevent the cash from being used for any purpose other than your debt payment making sure that you will always have your contingency debt management funding act and ready to use if need be.

Try Out Refinancing Options

There are also several options for refinancing available in the market. You can try out any one of these if you want to have some respite from your multiple loans and consider it to consolidate into one. Experts say that refinancing your mortgage is probably the best and smartest move to achieve the desired result in debt management.

However, no matter whichever option you choose to avail, make sure that you look out for the rate of interest of each. Apart from that consider the risks involved in it so that you do not find yourself in a bigger debt trap trying to get rid of your existing one.

Author Bio:

Amy Walsh is an experienced and skilled business consultant and financial advisor. She helps clients both personal and professional in long-term wealth building plans. During her spare time she loves to write on Business, Finance, Marketing, and Social Media. She loves to share his knowledge and Experts tips with her readers.


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