How To Take Control Of Your Debt – 10 Easy Steps
For many individuals, coping with debt can be a challenging process. If you’re having difficulty with paying your bills on time or have received several notices from creditors, it may be time to explore the best debt management solutions for your situation. This can include simple steps you can take on your own or seeking professional aid if it’s more serious.
With practical options like cutting down on your expenses, using rewarding debt repayment methods, or negotiating a better rate, there are numerous options that can improve your situation over time. As you’re paying off your debt, don’t forget about adding to your savings fund when you can so that you have a backup plan to rely on for emergencies.
Top Debt Management Strategies
This list of debt management strategies can help you reduce or eliminate debt entirely as long as you stay focused and motivated throughout the process. Since there is no quick fix when it comes to managing your finances, trying one or several combinations of these tips can help you build a strategy that works for you.
Figure out how much debt you owe
To ensure that you have an accurate idea of how much debt you’ve accumulated, the first step you should take is to make a list of all your debts if you haven’t already. This can include any personal loans, auto loans, student loans, or credit card debt.
Make sure to include key details such as the total amount owed, current interest rate, and the minimum payment you owe on a monthly basis. Don’t forget to include the contact information of each lender and any other loan repayment terms. If you need to, call each lender to ensure your information is all up to date.
Consider which debt repayment strategy is right for you
Two common debt repayment strategies include the avalanche method and the snowball method. Each one comes with its own pros and cons, but both methods can help you stay motivated depending on your preference.
Firstly, the avalanche method involves paying off the debt with the highest interest rate. The major practical benefit of this is that you can save money over time in terms of interest. Once this debt is repaid, you pay off the debt with the second-highest interest rate, followed by the next one and the one after that. However, it can be challenging to stay on track.
Cut down on your expenses
It’s often easier said than done, but the best way to prevent yourself from accumulating more debt as you pay off your existing loans is to stick to a budget that you can work with. See where you can reduce your expenses so that you can pay off a larger portion of your debt.
Ideally, you’d prioritize your major expenses including rent, gas, groceries, and utilities. You can cut down on discretionary spending on monthly entertainment or fitness subscriptions, shopping, and dining out. Figure out which options you can share with family and friends, get discounts on, or eliminate entirely if you’re not using.
Create an emergency fund for backup
As you’re paying off your debt, an unexpected emergency, medical bill, or job crisis can hit you without warning. If you don’t have a savings fund to draw from, your debt situation could worsen. Because of this, starting or adding to your emergency fund can help you cover these expenses if they do come up.
You can start small and contribute a fixed amount of money per day or week and eventually build up to a larger fund. Ideally, most professionals recommend having at least three to six months’ worth of living expenses that can get you through a crisis.
Try to make more than the minimum payment required
If you can’t afford to make the minimum payment on your monthly debt, your credit score could take a significant hit. At the bare minimum, you should aim to make the minimum payment on every account so you can avoid being charged with any late fees that can contribute to your debt balance.
Keep track of due dates in a physical calendar or a mobile app so you can remind yourself a week or two before you need to make the payment. If you forget to do so, your pile of unpaid balances can quickly add up and become even more overwhelming to tackle.
Use cash instead of credit where possible
If you have trouble controlling your spending, it may be wise to avoid using your credit cards while you’re in the process of paying off debt. Taking some time to reevaluate your current situation can help you determine whether it may be time to avoid interest-free spending. Only use your credit card for essential items and use cash when you can.
Physically keeping track of how much cash you’re spending is a lot easier if you’re using real money instead of swiping a card or entering details online. Once you’ve hit zero on your loan balance and gained some financial stability, you can start using your credit cards mindfully.
Talk to your creditors to see if you can get lower rates
Depending on your situation, you might be able to negotiate better interest rates on your existing loans if you have an understanding of creditors. Call each one up to see if they offer any alternative repayment plans that can minimize your interest rates and make it easier to eliminate what you owe.
You might have a better chance of getting lower interest rates if you have a credit card account with a company for a long duration and have been paying your bills on time. Don’t be afraid to follow up in 3 to 6 months even if you get a “no” the first time.
Consider debt consolidation options
If you have multiple credit cards that are in debt, consolidating them into a single low-interest personal loan can help you pay off your balance much faster. If you have a good credit score, you should be able to qualify for an interest rate of around 5%, or at the bare minimum one under 10%.
Before consolidating your debts, you should look into the time it takes to pay off the personal loan and see whether the total costs are worthwhile in comparison to your existing debt. There may be additional fees that you’re unaware of, so it is best to do your research and read the fine print before committing to your plan.
Keep tabs on your credit score
During the process of paying off your debt, you should keep track of your credit score and see if there are any positive or negative changes that can impact your ability to get a loan or open new accounts. There may also be mistakes in terms of debts, payment history, and personal information that is in your best interest to correct as soon as possible.
You may also be able to get a better idea of any debt collection agencies that are responsible for following up on your existing debt that has gone unpaid. If you’re trying to file a dispute, get in touch with TransUnion, Experian, or Equifax and they should be able to investigate your claims within 30 days.
The good news is that you can get a credit report for free from the three major bureaus every year, but you might have to pay an extra fee to gain access to your credit score.
Find ways to generate more income
For greater financial stability, it’s worth taking a look at ways you can earn more either at your current job or on the side. Asking for a raise or a bonus based on improved productivity or other team contributions can give you greater peace of mind in terms of covering payments and loans.
In addition, there are also many accessible side hustles that can give you extra funds, such as selling used clothing, sports equipment, and furniture on eBay, or filling up surveys online. Catering to your strengths can help you find a side hustle that doesn’t feel like a job, whether it’s academic in nature, on the creative side, or more physically demanding.
Ideally, it’s best to commit any extra income towards paying off your debt, including any gifts or tips that may be given to you. While it may be tempting to spend it on something you’ve been eying, even a small amount can make a difference in the long run.
Although people typically attempt to tackle debt on their own, it may not be easy to solve a steadily rising balance. For more major debt issues, it may be wiser and more effective to reach out for professional guidance that can give you more cost-effective solutions.
If you’ve already tried the tips above and are still having problems paying back your debt, consider reaching out to a reputable company with a proven record that can get you the help you need to get back on your feet. A credit counseling service can provide you with specialized financial resources and aid that is specific to your needs and goals.
If you have any questions, leave it in the comments section for us to answer!