Managing Debt – The Right Options For Actual Results
Don’t give up if you’re having trouble managing your debts
5 Golden Rules for Managing Debt
- List and account for all your debts
- Get urgent help if necessary
- Create and stick to a budget
- Prioritize your debts
- Consider refinancing or debt consolidation
List your debts
Make a list of all of your accounts and debts to have a clear understanding of your financial position.
Before you can really tackle debt, you must have a transparent idea of how much you owe, and what each debt is.
Get urgent help if you need it
Help is available if you need it- and free, if you search in the right places.
If your debts are out of control and you are having a tough time making ends meet, it’s paramount that you address it right away. There are online resources and apps that can help you sort out your debts, as well as local resources that may help for free.
- Local Churches or Financial Counseling Locations- while not all debt counselors are free, there are usually resources in your community that may help you along the way- or at least get you started in the right direction. Look online for classes, counseling, and groups that focus on financial health to use as valuable resources in your journey to reducing your debt.
- Consulting with your creditors- you may want to negotiate with creditors to see if there are options for delaying payments, creating installment payments, or filing for hardship with your creditors to extend the payment terms until you reach a better financial position.
- There are apps for debt management to help you along the way, like Mint, ChangeEd, Debt Payoff Assistant, and Tally.
Create a budget
Set a realistic budget that you can stick to
Setting up and sticking to a budget is the only way to truly stay on top of your finances and tell your money where to go. It’s not about deprivation- it’s about taking back control.
Once your budget is created, you’ll see how much money you have remaining. Determine how much of this left over income you can afford to place toward repayments, so you can clear your debts. If you’re unhappy with the amount that’s left over, check your budget and evaluate where you can possibly cut back on your spending. Learn more about money skills here.
Prioritize your debts
Continue to pay the minimum payment on all of your debts, at the very least.
When you have a clear idea of how much you owe on each account, and how much money you have set aside for extra payments, you’ll need to determine which debts you’ll pay off first. Depending on the type of debt, you have a couple options.
You could start by:
- Focusing on paying debts with the highest interest rates first; or
- Pay off the smallest debts first (so you gain momentum from your sense of achievement).
Regardless of which type of debt you choose to focus on first, make sure you continue to make the minimum payments on all other debts to avoid any late payments or default fees.
Make it automatic
A solid way to stick to your plan of paying off each debt is to set up auto pay from your bank account. If you arrange for your extra payments to go directly to your loan or credit card each time you get paid, it’s done without you having to think twice about it. You won’t forget, and you won’t be tempted to skip it.
Then, as you pay off each debt, cancel the auto pay and create a new one to transfer the extra money to the next account on your priority list. Remember to continue to make the monthly payments on each debt at the same time.
Close each account as your debt is paid off
If you are paying off credit cards, remember to close the account once it’s paid off.
Consider refinancing or debt consolidation
It may sound like a good idea to pay someone to fix your credit problems, or roll all of your loans into one payment. But, take time to consider if this is really the best option for you, or if there are other ways you could manage your debts for free.
Consolidating and refinancing loans works for some people if it means they can pay lower fees and interest. But for others, it may only be a short-term fix, especially if they find they can’t actually manages the repayments on the new loan.
When it comes to managing your debt, the most important thing to do is to get started. Assess your situation and consider your options that will be best suited to you. If you’re struggling, act quickly and seek help.