Debt is a part of life in some way for most people living in the United States. But for some it’s a lot tougher to deal with than others. About a quarter of adults aren’t paying bills on time, and almost 10 percent have debts in collections. There are lots of people out there who feel like there’s no way for them to get out of the cycle. While debt can certainly feel suffocating, there are some approaches you can take to help mitigate your debt.
Stop Making More Debt
There are a few reasons why people struggle to stop creating more debt. Often, it’s just not avoidable. Say your car breaks down and you need to make a costly repair that’s not going to be totally covered by insurance. Your options are to either take out debt to pay for it, find someone who will give you money to pay for it, or not get it fixed and try to find another solution. For most, the first option is the only reasonable one.
Other times, people get into the habit of living a certain lifestyle, which they can only pay for with debt. It’s hard to stop something once you’ve gotten used to it. However, in order to effectively pay off your debt, you need to do everything in your power to not make more of it.
Take a Hard Look at Your Budget
How much time do you put into your budget? If the answer is none, or not enough to even know how much you’re spending each month, it’s time to take this more seriously. There are a few key steps to putting together an effective budget.
- Get all your financial paperwork in one place. Your bank account statements, bills, loan balances, utility payments, paystubs—anything that constitutes an income or an expense—get all of it together. It’s important you don’t leave anything out.
- Total up your income and expenses to see how much of a surplus or deficit you’re running at each month. This is an important step because it’ll show how much you need to change your spending, earning, and saving in order to pay down your debt.
- Differentiate between “needs” and “wants.” Everyone buys things they don’t need. Having debt doesn’t mean you can’t treat yourself sometimes, it just means you need to be more cognizant of it. See where you can trim some fat out of your budget so you can dedicate more towards your debt.
Pay as Much to Your Debt as You Can Afford
With some kinds of debt—such as a mortgage—you don’t necessarily need to rush to pay it off if it comes with a relatively low interest rate. But not all debt is the same. With higher interest rate debt—such as credit cards—you want to pay it off as soon as possible. After coming up with a budget, dedicate as much as you can to paying off these vampiric loans. There are a few methods for approaching debt repayment, but most experts think it’s wise to focus on one balance at a time. There are two main schools of thought for doing this: the snowball method and the avalanche method.
The snowball method has you aim to pay off your debts in order of the balance size. This can help people with a lot of debt gain some confidence and momentum, which will then carry over to paying down the rest of their loans. The drawback to the snowball method is that it doesn’t take interest rates into account, which means you’ll end up paying more over time than if you use the avalanche method. With the avalanche approach, you tackle the highest interest rate debt first, which is the most efficient approach financially. However, you don’t get the same psychological benefit of a quick victory.
Work with a Debt Relief Agency
A lot of people find that they just can’t manage their debt anymore. It’s gotten too large, too spread out—or some combination of those things. If this sounds like you, it might be time to try debt relief.
Programs like Freedom Debt Relief offer a few types of debt relief services that can help consumers get their lives back on track.
- Debt settlement is where a lender accepts a payment that’s lower than the original balance due. Lenders want to get their money back, plus interest, when they let you borrow money. However, they’d rather get something back than nothing at all. A debt relief agency can help you save up and negotiate with lenders so you can maximize your chances of getting a more favorable settlement.
- Debt consolidation is where multiple debts are combined into one single payment. Some people do this on their own through credit card balance transfers. But this can be risky—especially if you don’t pay off the debt during the low interest rate introductory period. Some debt relief companies can settle with your lenders, then create a consolidated loan for you to pay back directly to their agency. This option for qualified consumers can lower the amount you’ll need to pay, while also simplifying repayment.
Look for Better Deals on Essentials
As already mentioned in the budgeting section, there are some necessary and unnecessary expenses you need to pay each month. But just because you need something (a place to live, food, insurance, utilities) doesn’t mean you’re getting the best possible deal. Try shopping around for some better options on your essentials.
No one wants to have debt. It’s a truly uncomfortable weight to have resting on your shoulders. If you’re tired of having debt following you around, it’s time to take action, and find a way to eliminate it from your life.