These include reviewing financial habits, reducing spending, and setting a budget

Guidance for debt management and repayment

If the amount owed is more than the discretionary allowance, spending should be reduced or income increased.

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Companies specializing in financial consulting, including Nerdwalt and Credit Dot ORG, have offered a set of guidelines and advice for managing and paying off debts, stressing the importance of reviewing financial habits and reducing spending, as well as setting a budget and negotiating with creditors in the framework of repayment. , And access to financial freedom.

The following are the most prominent of those tips:

financial budget

Budget is the first step to getting rid of debt, as it is the key to organizing financial life, by setting a clear spending plan every month that takes into account how much an individual makes and what he earns while recording fixed expenses, such as a mortgage or car payments, as well as variable expenses, including: That is, food and entertainment expenses, the individual knows his financial situation accurately and can allocate part of the income to comfortably pay off debts, while fulfilling other important financial obligations.

Payment plan

Assuming that the budget provides sufficient discretionary spending, a plan can be prepared that focuses on paying off debts and speeding up the time it takes to get rid of them, by listing the different types of debts and monthly payments for each of them, such as mortgage, car loans, in addition to credit card debts, then collecting payments To see the total amount.

This will help in identifying and prioritizing the repayment of the largest sources of debt and also knowing the progress that has been made, which will motivate you to continue getting rid of debt.

However, if the amount owed by an individual is more than the discretionary allowance, you will need to reduce spending or increase income to make larger or more frequent debt payments, as the amount of additional money that can be put into debt each month should always be determined.

If only the minimum amount is paid, it will take a long time and more payments, but in the event that additional payments are made, the bank's additional payments policy should be known so that it can achieve the maximum benefit every month.

Reducing interest

Higher interest rates make it more difficult to pay off debt, so one of the best strategies to get rid of debt is to try to lower interest rates on debt.

There are ways to achieve this, including contacting the creditor and requesting a lower interest rate, either temporarily or permanently, and a good record of timely payments can increase the odds of success, but if this approach fails, converting high-interest credit card debts into debt should be done. Low interest using a balance transfer card, as these cards offer a lower or even zero interest rate during the promotional period, making it easier to pay off credit cards more quickly.

However, the transfer often comes with a fee.

The interest rate may rise once the promotional period is over, and the client may end up with more debt if he continues to spend on the card.

For this reason, this option should only be selected if the customer has the discipline not to place additional spending, and if he intends to repay the debt before the end of the promotional period.

Gearing ratio

The debt burden ratio, or debt-to-income ratio, expresses the individual's tolerance of paying monthly installments based on his monthly income, and it is one of the main factors that help lenders determine the extent of risks associated with credit files, and then the decision comes to reject or accept, or even take measures To guarantee their rights.

The debt ratio aims to regulate the borrowing process and keep the financial burden of paying monthly installments under control.

But it is important to maintain a low debt-to-income ratio, as less than 30% is recommended, but less than 7% can help obtain a higher credit score, by working to reduce this number as soon as possible, the grades will improve. Credit, as this can be done by paying off debt and not incurring more of it.

Debt Consolidation

Debt consolidation, by combining multiple debts into one monthly payment at a lower interest rate, is a suitable option for managing accumulated debts.

A common method of debt consolidation is to obtain a special type of loan known as a debt consolidation loan, or to work with a non-profit credit advisory firm as part of a debt management plan.

Here, the advisor will negotiate with the creditors on behalf of the client to secure lower interest rates.

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