Several individuals and businesses have been into arduous financial situations due to the Coronavirus pandemic. The pandemic has induced an unrivalled rise in uncertainty surrounding the economic condition of many countries. A high rate of debts has amassed because of increased unemployment and reduced income caused by the decline in business activities leaving many people struggling to make ends meet.
People face the dilemma of paying off the debts accumulated due to the pandemic or building up savings for future financial goals or threats. Many people might consider tackling the challenge in a sequential manner where they either get to save up first to pay off debts or clear their debts first to save up and invest later.
Striking a balance between both options might be a considerable choice as juggling between debt repayment and saving can be financially draining due to the impact the pandemic has on the finance and the economy. In this article, several tips that can establish harmony between paying off debts and savings are listed.
Here are some ways of balancing debt repayment and savings amid Covid-19 and economic uncertainty:
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1. Plan for financial emergencies
It is necessary to make plans for financial emergencies to avoid accumulating debts to meet unplanned and unexpected expenses. Many people prepare a budget for their income without making allocations for other necessary expenses that may arise; this usually leaves them encountering debt to resolve those needs. Financial emergencies can happen at any time. Therefore planning and making reasonable savings can help one in utilizing income effectively.
2. Minimize expenses
Staying afloat financially through economic crisis involves cutting down on certain expenses. Our expenses should be prioritized by listing and arranging them in order of importance and necessity for living. Trimming expenses can fetch extra money to cover bills and also help in putting spending habits in check.
3. Assess your debt status and budget
Some debts can be manageable over time without imposing financial stress on the person. Such are usually low-interest-rate debts. Also, there are some debts, if unattended to, might accumulate unbearable interest over time. High-interest rate debts should be a priority when considering debt repayment. Assessing your debt situation and weighing what percentage of the income goes into clearing off the debts can put one on track to better debt management. Debt repayment, as well as building savings, should have allocations on the budget along with other expenses.
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4. Set realistic savings and debt repayment goals
The desire to be debt-free while building up savings becomes attainable when expressed in a realistic and relatable format. Striking a balance between debt repayment and savings requires setting realistic goals and targets that involve the amount of money to be put towards clearing debts and the amount allocated to build up savings. These goals will help to keep track of the progress made and determine the income spent.
Scaling through a financial crisis is uneasy and involves careful financial planning. When faced with economic uncertainty, it is necessary to take care of your finances by assuming responsibility for your resources. The strategies mentioned will guide you on how to balance debt repayment and savings amid economic uncertainty.