Go on and say it. “I’m in debt.” This realization is the first and perhaps hardest step on your journey towards debt relief.
It’s safe to say you aren’t alone in this challenge. The entire global population owes a combined $253 trillion. But whether you owe a small loan or a massive one, there are plenty of tried-and-true methods of managing and eliminating any amount of debt.
Take a deep breath. You aren’t going to be debt-free overnight, but with consistent and intelligent habits, you’ll slowly budget yourself to a better future. Here’s how to deal with debt for good.
1. I’m in Debt! Now What?
Many debtors tend to ignore their situation until things get out of hand. It’s time to rein them back in.
Go through your credit statements and list every loan you owe, including the amount and the monthly payment date. Once you know the extent of your debt, you can more accurately plan ways to battle it.
Remember that loans fluctuate as you pay them down, so reevaluate your list from time to time. It’s a good idea to take advantage of an excel sheet or similar software tools to make updates fast and easy.
But pen and paper can get the job done, too.
2. Target High-Interest Loans
If you have several loans, your immediate plan may be to pay them all down at the same time. The problem is results take a long time to precipitate with this method. And when you’re not seeing results, your mental fortitude can take a big hit.
But it gets worse. Divvying up your payments can cost you money — a lot of money — in the long run.
Imagine you have a loan with a 2% interest rate and one with 20%. It makes more sense to put all your disposable income towards that 20% interest loan. If you divide and conquer, this loan will continue to grow out of control even if smaller ones begin to taper off.
There’s one caveat to this method, and that’s that some people get discouraged when those massive loans don’t go away after the first few months.
If this sounds like you, follow the debt snowball method instead. Rather than targeting loans with the largest interest, attack the ones with the lowest balances. It’s not as smart financially, but the extra motivation can keep you in the game.
3. Pay Every Bill on Time
Missing a bill is never a good idea. You’ll end up paying more overall due to late payment fees. Keep missing the same bill, and you could see changes to your interest rate and credit score, making repayment more difficult.
If you tend to forget, feel free to sign up for your processor’s automatic payment tool. This way, you won’t even have to think about paying back these loans.
But what if you’re having a bad month because of an unexpected emergency? Meet the minimum payment if at all possible. By paying at least the minimum, you’ll stop the current loan from bloating any larger.
4. Consolidate Your Loans
Many debtors find great success in consolidating their loans. But how does debt consolidation work?
If your credit score isn’t shot, you can take out a single loan to pay for all your existing debt. If this consolidation loan has a lower overall interest rate, you’ll also save a significant amount of cash throughout the payback duration.
There’s also something to be said about the ease of paying off only one monthly loan compared to several. Anyone who has several loans of varying interest should learn more about consolidating.
5. Transfer to a New Credit Card
Some credit cards have introductory offers boasting incentives such as 0% APR. If your credit score is intact, you can put these incentives to work for you.
Open up a new credit card with a special 0% APR offer. For a small transfer fee, you can put your existing credit card debt on the new card. Until the special offer ends, which usually runs at least 12 months, you’ll save big on interest and have an opportunity to pay down the principal directly.
6. Trim the Budget
The simple truth is the less you spend, the more you save. Or in this case, the more money you have to pay off your outstanding debt. If you’re having trouble keeping up with your loan payments, it’s time to re-evaluate your current budget and living expenses.
Stick to the popular 50/30/20 budget plan. 50% of your after-tax income should go towards needs, 30% towards wants, and 20% towards savings or debt. Keep track of every expense you incur throughout the month, then categorize your purchases.
How close are you to this budget plan? If one category is especially out of place, you should change your spending habits to compensate.
So how do you trim the fat from an oversized budget? Audit your purchases and refrain from buying anything that won’t see regular use. You may also want to consider changing your place of residence if you find you’re spending too much on rent.
Manage Debt One Payment at a Time
“I’m in debt!” This may hold true now, but after a few years of disciplined spending and payback habits, you’ll be well on the road to recovery. No matter how much debt you owe, a debt-free future is in your reach.
Enact these debt management techniques, and you’ll be living your best life before you know it.
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