Finding Right Way of Debt Management

Any strategy employed to manage loans and debts can be termed as debt management. The strategy could be unique or simple. Debt management can be done from an external source or by the debtor himself.

Why is debt management important?

We at often come across people who have an important question. Do I need Debt Management? Why is it necessary for me? The answers to these questions are very simple. If a debtor is under an intense financial burden, and he or she is struggling to make cash loan payments on time, debt management is the only way. Debt management can offer comfort in a hopeless financial situation.

  • Debt management helps debtors to get realistic about their financial situation
  • Debt management can relieve the debtors from worries and anxiety
  • An effective debt management can save some money to the debtors
  • People who are confident about their finances feel secure and confident

Borrowing money often comes with a great responsibility of repaying it. Debt management can also start before borrowing. A disciplined and preventive approach can solve debt management problems in future.

Before you borrow: Ask questions

  • Re-assess your needs and requirements. Ask some valid questions like; is it necessary to borrow money for this? Is this what I want?
  • The borrower should try to minimise the loan amount as much as possible-how much should I borrow?
  • The borrower should consider their repayment potential before they borrow- Can I repay the loan amount on time?
  • The repayment potential of a borrower is very vital. Additionally, a borrower should consider increasing his or her income after they borrow- How can I increase my earnings?

1. Research and learn

  • Once you have listed all the answers to the above questions and decide to apply for a loan, it is important to get a better interest rate and loan term. Hence, people should research various loan schemes offered by bank.
  • Make a list of competitive interest rates and loan terms provided by various banks. People can also consult with their financial advisors to know about the right loan plan for them.
  • Choose a reliable and trustworthy lender. The debtor should be able to trust his or her lender in times of financial crisis and difficulty.
  • Never rush into borrowing. Take time to decide and consider various factors that may help you to manage your debts effectively in the future.

After borrowing the loan amount, debtors can manage their debts by:

1. Paying off the loan amount from savings

We, have been asked by many people as to whether they can pay off their loan amount from their savings? Repaying the loan amount from savings is one of the most effective ways of managing debts. Debts are very costly. If people compare their debts and savings, they will find that the cost of the debt is more than the profit from the savings!

  • Savings are nothing but lending amounts from people to their banks or financial institutions. The banks offer an interest rate as per the market standards to its customers.
  • The banks lend the same amount to other customers at a higher interest rate. Now, the difference between the interest rate paid to people with deposits and the interest rate charged to the debtors is the profit earned by the bank.
  • Hence, people earn very less on savings but pay more to get a loan from the bank.
  • Some people have deposits and loans in the same financial institutions or banks. Such people earn less and pay more to the same banks!

Are there any exceptions?

There are few exceptions to repay the loan amount from savings such as:

1. Some debts require debtors to complete the full loan repayment term. Such loans when repaid before the loan term can lead to penalties.

2. If a debtor earns more from his savings and pays less interest rate on his or her current loan, it makes no sense to clear off the debt amount with his or her savings. Some of the examples of such loans possibly include: Credit card loans with introductory interest rate offer, student loans with grace periods and 0% overdrafts.

Saving for a rainy day is perceived as the most important financial practice. People prefer having some funds in their savings for emergencies. If the loan repayment is costing more and has become a burden to the debtor, he or she should consider clearing the due amount from savings.

2. Manage debts by financial discipline

Debt management can happen through financial discipline. Financial discipline is all about the ways of money management. How much to spend? How much to save? Etc forms the basis of financial discipline. When a person's behaviour towards money is organised and disciplined, then he or she can manage their debts better.

  • In case of multiple debts, it helps to create a list of information such as the total loan amount on each debt, monthly repayment amount, loan term etc.
  • Repayments must be done as per the repayment schedule. Never miss or delay repaying loan amount.
  • Ensure to pay more than the minimum payment. However, for a loan that requires completing the agreed loan term, make the minimum payment without fail.
  • Prioritise your debts based on the risk factors. For example, mortgages and home equity loans can lead to foreclosure hence; such loans must be prioritised over credit card loans or student loans.
  • Prioritising loans should not stop you from paying off your less-serious loans such as credit cards etc.
  • If you incur late payment charges, remember to include it in the next repayment schedule without fail.
  • Draw a monthly budget and spend accordingly.
  • If you feel the burden of debt is too much to handle, do not hesitate to seek professional help as soon as possible.

3. Seeking professional help to manage debts

You may want to seek advice and help from professionals who understand debts and debt management. We at urge debtors to seek financial advice when debt management becomes overwhelming.

a. Debt Relief Programs

Credit counsels help the debtor by analysing his or her financial situation in depth. Credit counsellors assess the debtor's finances to provide a suitable financial plan. The financial plan includes revised budgets, assessment of expenditure and income, money-saving tips on monthly spending, etc.
The credit counsels mediate between debtors and lenders to offer a suitable loan repayment plan. The credit counsellors can put a debtor on a Debt Management Plan (DMP) when the debtor has multiple loans and a huge due amount. Debt Management Plan involves a negotiated and agreed loan repayment plan between the debtor and lender which is mediated by the credit counselling agency.

b. Debt Settlement Programs

Debt settlements are done through the debt settlement agencies and firms. The Debt Settlement Company or firm will intervene to provide a renegotiated loan repayment terms to the debtors. There are many ways to settle debts such as a lowered interest rate, longer loan repayment period or even a reduced debt amount. Some lenders who cooperate with debt settlement agencies agree to renegotiate while others may refuse.

c. Debt Consolidation Programs

Debt Consolidation Programs are best suited for those who are under severe financial stress due to multiple loans. The debtors can consolidate all the loans into a single loan. In other words, Debt Consolidation is debt refinancing. The loan can be secured or unsecured. A secured loan requires the debtor to provide collateral.
Professional help to manage debts can benefit the debtors with unmanaged finances and debts. Addressing the financial distress through professional help can save a lot of time and money to the debtors.


People may perceive debt management as the final resort during a financial distress. But, in reality debt management can be practiced at the very beginning of a loan term. Proactive debt management can help the debtors to pay off their loan amounts on time. Repaying the loan amount on time helps the debtor to create an amazing credit report with good credit scores.
Debt management can be done by the debtor himself to mitigate the risks. For a debtor to start managing his or her debts, financial discipline is very important. Assessing the spending habits and creating more income can ease the financial burden during the loan term. However, debtors are advised to seek professional help should they fail to improve their financial situation.
Professional help in debt management offers various options to debtors. It could be debt relief programs, debt settlements or debt consolidations. Third party mediation between the debtor and the lender is a major part of such programs.
Debt Management should be taken seriously as it can help the debtor to clear off loans on time, avoid penalties and improve the credit report.

Debt Management is effective, and sooner the better.