How to Manage Debt More Effectively

There are many people in today’s society that do not know how to manage their debt effectively. Because of this they are over run with debt repayments and can never seem to get on top of their finances. I want to show you how you can manage your debt more effectively so that you can begin on the road towards becoming rich.

Debt is a problem that is extremely prevalent in today’s society. Almost everyone knows someone who is overrun by extreme debt, and it is likely that you have some sort of debt that you could manage more effectively.

Debt is a complicated matter because often dealing with debt is an emotional problem, not just financial. If the way we managed our finances was purely logical then we wouldn’t be in debt in the first place. When managing debt we have to take our emotions into account. Often people are unable to follow a plan because emotionally it offers no reward.

The advice many financial planners give to people who are in a lot of debt is to consolidate their high interest debt into a low interest loan (such as a home loan). That way they only have one repayment to make and they can slowly but surely pay of their debt. The problem is they don’t take emotions into account. These people then find they have a cleared credit card and will go out and spend money on their credit card, putting them in even more debt than before.

Another problem people have with reducing their debt is that they are constantly trying to reduce their means by living frugally. The more debt they have the more frugal they try to live. This does not offer any emotion reward either as life is extremely tough as you are trying to pay off debt. Even once all of the debt is paid off people still do not find themselves rich.

A more effective way to manage debt is to focus on cashflow instead of of the figure of the debt. Your goal should be to get rich by increasing your means, and to pay off debt at the same time. This offers the best emotional reward, and it is financially logical. It is just a little more creativity and intelligence than the methods most financial planners recommend.

The goal is to generate enough passive income (income that you don’t have to work for) to pay for the interest on your debt, and to pay off your debt over time. Most people focus on putting a lot of money onto their debt to pay it off quickly. I am suggesting that you minimise the cashflow impact your debt has. Do what you can to lower the interest rates you have to pay on your loan, then lower your monthly repayments by paying just the interest (or the interest plus a little extra). Let me just state in the moment that I am not a financial advisor and I am not telling you that you should do this, I am just educating you of a method you might like to use. Always seek financial advise before choosing how to manage your debt.

Now you can use the extra money you would have used to pay off debt to invest in an asset that generates passive income. I like to invest in positive cashflow real estate. It offers the advantages of leveraging the banks money, and you get both capital appreciation and rental income. Now you can use the passive income to offset the interest repayments on your loan. The goal is to get your passive income to equal your interest repayments, plus a little extra.

Once you achieve this you can then forget about your debt, as your asset will be paying it off for you. This offers maximum emotional reward as you don’t have to live below your means, and you are building wealth. Eventually your asset would have paid off your debt completely and instead of being left with nothing, you now have an asset that continues to generate you income each and every month. You have increased your means and you now have increased you skill set so you can continue to invest and get richer and richer. Now doesn’t that sound like a more effective way to manage your debt?

Your next step towards becoming rich is to increase your financial IQ through education. By educating yourself in the area of finances you will be able to get a greater return on investment and you will be able to earn more with less work and less risk. Does that sound good to you?