Debt Management Strategy
A good Debt Management Plan is one of methods in reaching your goal towards financial freedom. It allows you to wipe out your debts in a way that you can afford. I believe that the major causes of huge amount of debt is immediate human gratification. It’s very hard to fight the impulse of having what you want right away. The best way to control your debt is buy only what you need and not what you want. Spend less than what you make and invest the rest. Instead of accumulating debt, you should accumulate more money for investments. Of course, it is easier said than done. It requires discipline in our part not to get tempted this sweet sounding offer in the front end like zero interest for the first few months and after that, they are going to charge you with interest rate. If you fall this kind of trap, you will never get out of debt particularly if you pay only the minimum required payment for each billing cycle. To get free and clear of debts, you often have to accelerate your monthly payment There are two distinct strategies that you can employ in paying off your debts:
- Debt snowball is a strategy for paying down debts, popularized by personal finance author Dave Ramsey. It involves paying off your smallest debts first, then moving on to the next bigger ones until everything is paid off. With the debt snowball method, you pay down the smallest debt first and work your way up, regardless of the interest rate.
- A competing strategy is debt avalanche, which calls for paying off debts with the highest interest rates first. The debt avalanche method involves making minimum payments on all debt, then using any extra funds to pay off the debt with the highest interest rate.
Either method is helping you regain your financial freedom. You can also combine both strategies by targeting smaller debts with high interest rate of borrowing.