Consequences of Debt Management Strategies

Consequences of Debt Management Strategies

Impact on Credit Score

• Credit Score is an indicator of a person’s creditworthiness, based on their credit history. Effective debt management strategies can positively impact the credit score.
• Paying off debts on time improve the credit score and positive payment history accounts for about 35% of the total credit score.
• Too much overdue debt can lower a credit score significantly, making future borrowing more expensive or even impossible.

Financial Freedom

• Effective debt management brings financial freedom. By controlling and eradicating debts, individuals can achieve more financial stability and independence.
• This increases capacity for savings and investments, allows for more disposable income and less financial stress.

Change in Lifestyle

• Implementing a debt management strategy often entails a change in lifestyle. This can mean reducing non-essential spending, such as entertainment or luxury items.
• Debt over time can cause strain on mental and physical health. Effective management of debt can lead to better overall wellbeing.

Long-term Financial Implications

• Falling into the cycle of high-cost borrowing, like payday loans, can be prevented through effective debt management. These loans often have high interest rates which can lead to severe long-term financial issues.
• Effective debt management can avoid bankruptcy. This has significant long-term financial implications affecting future borrowing, housing and even employment prospects.

Improving Lending Options

• By successfully managing and clearing debt, an individual might gain access to better lending options in the future. Lenders prefer clients who have demonstrated responsibility towards their financial obligations.
• This can lead to lower interest rates for loans, increased borrowing capacity, and other favourable loan conditions.