There is nothing wrong with taking out a home loan or using a credit card to help pay off some of your bills. That being said, it is important to have a clear-cut strategy on how to pay off your loans in a timely manner and not fall into the trap of accumulating more debt as time goes on.
The below are some simple, yet useful tips on helping to manage your debt:
1) Be honest with yourself: Before purchasing a home or your dream car be realistic about what you can really afford and what size loan you can manage. Don't just go for the largest loan you can get, spend wisely.
2) Do your research: If you are looking for a loan or a credit card, consider all your options. Comparison websites are a great platform that allows you to understand which loan or credit card suits your needs best.
3) Understand the full cost before you borrow: Use a debt calculator to understand how much interest you will need to pay off in order to clear your debt.
4) Pay off your debt fast: The longer it takes you to pay off your loans or credit card bills, the more you end up paying. Prioritize outstanding payments over luxuries such as an expensive holiday or new watch. In the long term paying off your debt fast will be much more rewarding.
5) Prioritize your debt: If you have several loans, pay off the loans with the highest interest rates first.
6) Create a budget and stick to it: Each month, have a clear understanding of how much you will need to pay off your outstanding monthly payments and necessities like food and electricity. Don't compromise on your budget to chase short term thrills.
7) Utilize technology to help you: There are a number of free debt management applications available. Find the app that you are the most comfortable with and make a habit of using it. They will help keep you on track in managing all your outstanding debt.
Not only is it important to strategize before you incur debt or take out a loan; you also need to have a plan on how you will pay it off. In our previous blog, “A Detailed Look at Credit Card Debt Settlement Theories”, we looked at the best way to pay off credit cards and loans when you have multiple outstanding debts. In summary, you need to calculate which debt will have the highest interest amount at the end of the month. Note this refers to the Dirham value of the interest payments, not the percentage interest rate. You then pay off the minimum monthly payment on each loan or credit card and use any surplus cash to pay off the debt with the highest interest amount. This is the fastest way to get rid of all your debt; not to mention that you end up minimizing the amount of interest you pay if you use this method.
Finally, we have to emphasize that you really need to exercise discipline when you open the door to getting a credit card. Even if you view yourself as a disciplined individual with a lot of will power, you may be surprised how easily spending can get out of hand and how fast your debt can balloon.