Debt Help: Where Do I Start?
Debt is a fact of life for most people today. From credit cards to mortgages to student loans, debt can be a useful tool to help you get something you need now while stretching payments out over time. However, if you’re not careful, debt can be difficult to manage. It can build quickly and you might feel like you’re buried in bills with no way to dig yourself out. Whether you need formal debt help or just some tips on how to get on top of your bills, there are strategies to help you better manage your debt so you can use it effectively.
Do I need debt help?
Different people have different comfort levels for debt. If you feel burdened by your debt and can’t see a clear path to getting it paid off, debt help may be the answer. If you are having trouble paying your bills to the point that you are getting notices from your creditors, calls from collections services, and threats to repossess your home and car, you are in definite need of debt help. Most importantly, know that any level of debt can be overcome with the right guidance and commitment to a plan.
5 debt help options
If creating a payment schedule on your own feels too complex or overwhelming, consider contacting a financial advisor or a personal accountant. Investing in services from these experts can be worthwhile to help you get back on track and stay organized. In addition to assisting you with a payment schedule, a financial advisor might suggest other forms of debt relief, depending on your unique situation, including:
- Debt consolidation loans: Taking out a personal loan with lower interest to pay off existing higher-interest debts. For many, this approach makes a lot of financial sense and is easier to manage than paying off debts individually, since it requires just a single monthly payment.
- Balance transfers: With a balance transfer, you move higher-interest debt to another creditor offering a lower interest rate. Usually, balance transfers involve moving credit card debt from one card to another with a better rate.
- Credit counseling: Credit counseling can help you better understand your finances, weighing your income and assets against your expenses. A credit counselor can give you tips to improve your credit score and begin paying down your debts. If you can’t afford to pay for this type of help, there are nonprofit organizations that provide credit counseling, such as the National Foundation for Credit Counseling.
- Debt negotiation: Some individuals choose to take this process on personally, while others use a debt settlement company to help them. Debt negotiation involves approaching creditors and letting them know you are in a desperate situation and unable to pay off your debt to them. The end goal is to settle for a lesser amount that you can pay in one lump sum. The negotiation process can be tricky and this route will seriously damage your credit score, impact your ability to get credit in the future.
- Bankruptcy: Bankruptcy is a complex legal process through which people can eliminate or repay debts. A popular type of bankruptcy filing, Chapter 7, means you will liquidate your assets to pay off outstanding debts. The court allows you to keep personal property like clothes and household furnishings, but other valuable assets are sold off and the proceeds applied to your debts. Another common type of bankruptcy, Chapter 13, lets people with a reliable source of income pay back their debts over time. If you file Chapter 13, you must attend court-mandated credit counseling and create a detailed plan to repay your debts within 5 years. In doing so, you protect your property from repossession or foreclosure. Both types of bankruptcy have negative repercussions on your credit score for many years in the future.
Tackling your debt on your own
If you think you can manage your debt without outside help, you’ll want to first take a close look at your debt. Examining your debts and their interest rates is an important exercise that will help you get debts paid off in the most efficient way.
Your top-priority bills should allow you to maintain necessities, like a roof over your head and utilities. Your mortgage will always be your No. 1 bill to pay each month, followed by essential utilities and your car loan. If you can’t make the full payment, contact your creditors to see if you can work out an alternative payment plan. If you cannot afford these items, you may need to consider making some significant lifestyle changes.
If you are able to live comfortably and pay bills for necessities on time, your first debts to tackle are those with the highest interest rates. In most cases, these will be credit cards, followed by student loans and personal loans. Organize all your bills and paperwork to come up with a schedule that outlines how and when you will pay off each debt. Budget for your essentials and then apply your remaining income to your outstanding bills. Make all minimum payments first and then put what remains towards the debt with the highest interest rate. If any of your debts have a variable interest rate, keep that in mind when planning your schedule. Paying off debts in order from highest to lowest interest rate can save you thousands of dollars in the long run. Though it might be tempting to pay off the smallest debts first, attacking those with the highest interest rate will end up saving you money overall.
Keep this in mind as you repay debt
Once you have a plan to eliminate your debt, the challenge is sticking to it! It can be tempting to splurge on little purchases here and there, but if you do it too often, you can find yourself in even more debt trouble. Following these tips can help you maintain a comfortable lifestyle while you work on destroying that debt:
- Get rid of anything you’re paying for and not using. Do you belong to a fancy gym but rarely ever go? Maybe you are paying for premium cable but find yourself mostly streaming shows on Netflix. Does anyone you want to talk to ever call your landline? There is no reason to keep amassing bills for things that you aren’t using.
- Stop creating more debt. Put yourself on a cash diet so you are only using cash or a debit card while you work to pay down your debt. Give yourself a budget and stick to it so you have enough to put towards your debt each month.
- Find ways to make extra money, like selling your old clothes on Poshmark, picking up gigs on Craigslist, or turning your hobby into a source of income. Bringing in more money will help you pay down your debt faster.
- Be realistic about your plan. Sure, you don’t need to have pizza every Friday night, but the cost of a pizza is not going to make or break you and you do need some joy in life, otherwise, you won’t stick to your plan. Budget for a few small indulgences so you don’t resent your efforts to get your finances in order.
- Subscribe to a credit monitoring service to keep an eye on your credit score and make sure it’s moving in the right direction. Tools like My LendingTree not only monitor your credit score on a monthly basis, but they also help analyze your finances and identify places where you could be saving more efficiently. My LendingTree also offers tips on how to improve your credit score and better manage your finances.
Debt does not have to be a constant, overwhelming burden that’s always on your mind. Professional financial advisers can help you create a debt elimination plan that works for you or you can conquer debt on your own. By putting the right strategies in place and sticking to them, you will be able to pay off your debts and free yourself from the stress and oppression that excess debt can bring.