What is debt management? What is its importance? What are the types of debt? And how does debt affect cash flow?
Continue reading to learn about the best debt management strategies for you, the benefits and disadvantages of debt management, and how you can start managing your debt today. There is no need to feel alone in this fight against debt. Take action and improve your financial situation today.
What Is Debt Management?
Owing money or falling behind on repayments can be stressful. The good news is that you can take steps to relieve the financial pressure.
Debt management reduces your debt, including credit card debt, by consolidating your payments and taking over negotiations. A good debt management plan considers how much you earn and what you can afford to pay back at a reasonable rate while maintaining decent living standards.
The Importance Of Debt Management
Several factors make up debt. Understanding your debt situation is crucial. Paying down mortgages, car insurance, and personal loans are essential aspects of your debt management, but so too is leveraging debt to grow your wealth or achieve lifestyle requirements. A good debt manager will build a plan that accomplishes your goals while ensuring your debt gets paid.
Types Of Debt
Debt is generally classified as “bad” or “good.”
Bad debt refers to purchases that do not generate income for you or lose their value once purchased or used. You cannot claim tax deductions on these types of debt and have to use your resources for the repayments. Examples of bad debt include credit and store cards and home or personal loans.
Good debt refers to assets that can help accelerate wealth over time and increase in value. The interest accrued on these assets is also tax-deductible. A good example is property investment.
Debt And Cash Flow
Cash flow is your capacity to service your debt. Better utilisation of surplus cash flow can help reduce the interest payable on debt by increasing the repayment frequency or repayment amount.
One of the most important things you can do to improve your cash flow is to consolidate your debt. Suppose you are over-indebted and falling behind with your debt repayments. In that case, a debt manager can protect your assets by arranging a structured, affordable repayment plan for your outstanding debt. A debt solution company consolidates all your debt into one monthly payment. It reduces your interest rates based on your circumstances.
Does Debt Affect My Credit Score?
Using a debt management plan through any company will affect your credit score. However, your credit score is already suffering if you don’t know how to manage your repayments and organise your debt. Using a professional debt management company can get your debt under control and gradually improve your credit score.
If you’re concerned about the effects on your credit score, get in touch with a professional that can provide the correct information.
Some things that affect your credit score that is within your control:
- Your current loans
- The lenders you used in the past and whether you paid back those debts on time
- If you defaulted on any bills or repayments, this would negatively impact your score
- Whether you have multiple applications for credit within a short period is a negative indicator when viewed by a credit provider
- Whether you have been bankrupt or had to negotiate an agreement to change how you repay the debt through legal channels
How Precept Financial Services Can Help
Debt can cripple your cash flow. There are many ways to owe money for one thing or another, from mortgages to credit cards. Sometimes debt is manageable; however, if you have a lot of debt and difficulty paying it off, you need to find a financial planner to help with debt management.
An adviser at Precept Financial Services can help you explore your options around managing and reducing debt. Contact us today to get started.