The Tools That Can Help You Keep Debt Manageable

Debt is not necessarily something we have to fear as some great evil. We can take on healthy and manageable amounts of debt that allow us to afford expenses we otherwise could not, or to deal with financial emergencies that come our way. However, unmanageable debt is a serious issue. Here, we’re going to look at some of the tips you can follow to avoid getting into it. There are always options available, you just need to know what they are.

Image – CC0 License

Only Take on Debt You Know You Can Pay Back
One of the most crucial steps in safeguarding yourself against serious debt problems is to only take on debt that you are confident you can repay. Before taking out a loan or using credit, carefully assess your financial situation. Consider your current income, regular expenses, and any existing debts. It's essential to ensure that you can comfortably make the payments required for any new debt without compromising your ability to cover your other obligations. Avoid relying on future income increases or promotions to justify taking on more debt, as these are not guaranteed. Instead, base your decision on what you can afford in the present.

Keep an Emergency Fund at the Ready
An emergency fund is a critical financial safeguard that can help you avoid falling into serious debt when unexpected expenses arise. Life is unpredictable, and sudden costs such as medical bills, car repairs, or job loss can throw off your budget and lead to increased reliance on credit. Having an emergency fund ensures that you have a financial buffer to cover these unforeseen expenses without needing to resort to high-interest loans or credit cards. Ideally, an emergency fund should cover three to six months’ worth of essential living expenses. Building and maintaining this fund provides a safety net, allowing you to navigate financial challenges without accumulating additional debt. The security of an emergency fund can also reduce financial stress and help you stay focused on managing your debt responsibly.

Know How to Scale Your Finances
If you ever find yourself struggling to meet your debt obligations, it's important to know how to scale your finances and create a manageable payment plan. Start by assessing your current income and expenses to determine how much you can realistically put toward your debt each month. Prioritize necessary expenses such as housing, utilities, and food, and then allocate any remaining funds toward debt repayment. Scaling your finances may involve cutting back on discretionary spending or finding ways to increase your income, such as taking on extra work or selling unused assets. Once you've created a payment plan, stick to it consistently. If your debts are overwhelming, you may need to consider negotiating with creditors for a lower payment or extended repayment terms.

Get Ready to Contact Your Creditors
If you're facing difficulty repaying your debt, contacting your creditors early can prevent the situation from worsening. Many creditors are willing to negotiate when they see you're making a genuine effort to repay what you owe. This might involve setting up a payment plan with lower monthly payments or reduced interest rates. In more serious cases, a consumer proposal may be a viable solution. A consumer proposal allows you to repay a portion of your debt over time while protecting you from wage garnishment and other legal actions. Explore consumer proposal options and demonstrate your commitment to resolving the debt, which can lead to more favorable terms. This proactive approach also reduces the likelihood of your debt spiraling into a situation where bankruptcy becomes the only option.

Keep Your Credit Score Healthy
Maintaining a healthy credit score is essential for safeguarding yourself against serious debt problems. A good credit score allows you to access credit at favorable interest rates, which can make debt more manageable. To keep your credit score in good shape, make sure to pay all your bills on time, keep your credit utilization low (ideally below 30% of your available credit), and avoid opening too many new accounts at once. Regularly reviewing your credit report can also help you identify any errors or discrepancies that could negatively affect your score. If you catch a mistake, you can dispute it with the credit bureau and potentially improve your score. A healthy credit score not only helps you secure better loan terms but also gives you more financial flexibility in times of need, reducing the likelihood of serious debt issues.

With the tips above, you should see that there are steps to help manage and stay in control with debt, whether it’s before you take it on, as you’re repaying it, or even as you find out that you might not be able to keep up with current payments.