The pandemic is not an easy time for anyone, but for people who are struggling with bills they can’t pay, it’s frightening. Debt often feels like quicksand; Even as you’re making the minimum payments, you sink deeper and deeper.
Many people now feel they have lost all hope of managing debt. In an effort to survive week to week, paychecks go towards groceries and the most pressing bills. Meanwhile, credit card debt and huge loans loom over them, growing mercilessly.
It’s time to stop the cycle.
You’re here because despite the gloom, you know there has to be a light at the end of the tunnel. There is, and we will guide you to it. If you need help with debt, keep reading to learn proven ways of coping with debt and where you can get help.
Good and Bad Debt
It’s important to first understand the nature of a debt. Many people feel that all debt is bad, and yes, it can become bad if it’s too large for you to manage. However, there is such a thing as good debt.
Most people will experience debt in their lifetime, and they should. Good debt is an investment that pays back two-fold later on. Examples of good debt are student loans and mortgages.
The idea is that the debt you take on will better your future, like improve your job prospects or help you sell your home for more money down the road. Student loans and mortgages, however, can also be bad if the amount of the loan is more than you can reasonably expect to pay off.
Before you take on debt or assess the debt you have, you need to understand what debt will benefit you and if you can afford to eventually pay it off.
An example of debt that is always bad is credit card debt. Your goal in life should be to never have debt racking up on credit cards. The interest rates can be terribly high and the debt is not benefitting you in any way.
Now that you know what debt you should avoid in the future, you can better assess your debt and start improving your financial situation.
Strategies to Get Out of Debt
There are several proven strategies that can help you pay off debt, and you can employ as many as will help you. We all have different personalities and life situations that might mesh with one strategy but repel another. Try the ones that fit your situation best, or switch to a different one if it doesn’t seem to work for you.
Prioritize Your Debt
One of the best strategies that help with debt is called the “debt avalanche strategy.” In order to pay off your debt faster, you can cut down on the amount of interest you incur over time.
To do this, rank your debt from highest to lowest interest rates. Once you have them in order, prioritize paying off the debt with the highest interest rate. You should still be making minimum payments on the rest, but paying off the worst debt as soon as possible will save you money.
During the pandemic, there is also your survival to consider. Many people have lost their jobs or are at high risk of losing their source of income. Please remember to keep your emergency fund padded as well in case you need to start dipping into your savings.
You can decide how much money you have available to pay off debt, use the majority of it to pay off the highest interest debt, and still put some of it away into your emergency fund.
You know your situation the best, but following this strategy will help you start climbing out of the hole instead of digging deeper.
Budget Your Life
If you don’t already have a budget, you should make one as soon as possible. Having a detailed plan of how much income and expenses you have will help you better manage your money.
Write out how much income you have each month and the expenses you have for bills. Write out all of your payments for loans, take note of your utility bills, and don’t forget to account for putting money away for retirement and emergency funds.
You should always remember to keep track of money spent such as at the store, for gas, and online. Once you have everything written down in detail, you can assess your spending habits.
Are there one or two areas where you spend a lot of money unnecessarily? Maybe your phone bill is too high from using excessive data, or too much money was spent on clothes.
Use this information to adjust your budget. Make sure you always leave enough money for essential expenses and how much they typically cost. Try to cut back on areas where there is typically unnecessary spending.
Calendars for Debt
Organizing your income and expenses through a budget is not the only way to monitor and clean up your finances. It is also a good idea to make your payments seem more material by writing out your plans to pay them.
Often, people have direct deposits and automatic payments set up in their accounts and they don’t see the money coming in and out as much as they should. If you write out a calendar of when you will be paying off your debt and bills, the action will feel more real.
Do you want to pay off all your credit card debt by the end of the year? You can work out the math on how to make that possible and put the milestones on your calendar. Having the tangible steps you need to take to reach your goal will make you more likely to achieve them.
Setting goals can be highly motivating, and you’ll feel more prepared for each payment. You’ll be able to see what bills you’ll be paying at what time and better plan your other expenses around that.
This calendar can work in tandem with your budget!
Boost Your Income
Organizing your financial situation and setting goals is a great way to get started, and for some people, it’s enough. For others, being unorganized may not be the issue.
It’s still important to use a budget and set goals, but if you realize that you aren’t making enough money to pay off your debt as it stands, you need to take more aggressive steps. That next step could be to increase your income.
Are you close to a promotion at work? Do you think you reasonably deserve a raise? Take charge and make it happen.
Many people work without ever becoming confident enough to ask for more money, but this is a great way to assert your value in the workplace and be compensated fairly.
If you can’t get a raise or promotion, find out if you can reconfigure your tax withholding in your paycheck. You might be able to redo your W4 form filed at work in order to get more money in your paycheck each period. This means that instead of getting money back in your tax return, you will get the money right away.
If you typically use your tax return for other payments, remember that you will not be receiving one anymore if you do this. Also, make sure that you are filing correctly, or you could end up owing the government money back.
If none of the above suggestions are possible, think about turning a hobby or skill into a side hustle. You might be able to make extra money by selling your work or services in a different way. You could also try to work a side gig to make extra money in your free time.
Consolidating and Refinancing
There are some ways to manipulate your debt so that it works better for you in the long run. Many people consider consolidating their debt or refinancing loans like their mortgages. This can help save you money or make managing debt easier.
Consolidation refers to when you take out a personal loan with a bank or lender in order to pay off your other debts. By doing this, all of your debt is now stored under one roof instead of paying multiple places.
It’s also possible to save money if your personal loan has a lower interest rate than your other debts. You can get a lower rate by having a good credit score or having a cosigner on your personal loan with a good credit score.
Some people choose to refinance their mortgages. If you own your home, it’s possible to consolidate your debt into your mortgage. However, you should be careful doing this and seek advice first. Make sure you are able to meet your payments, or you could end up with no assets or savings.
Management, Settlement, and Hardship
It can never hurt to communicate with your lenders about managing your debt. Expressing your situation to them could lead to forgiveness like waiving fees that will help you regain control.
There are options like debt management plans and debt settlement. Some lenders have hardship programs that can help you make payments.
Debt management programs, such as those offered by A Debt Coach, can waive fees and reduce interest as long as you pay off the debt. You will be able to apply for credit cards again when the debt is paid, but you should make sure you can manage without them in the meantime.
Another option is a debt settlement plan, which is negotiated with a creditor to forgive some of the debt so that you can pay the rest. They are only offered by for-profit companies, however, and can hurt your credit. Additionally, they don’t always succeed in negotiating positive settlements.
Regardless of what plan you choose, make sure you don’t miss payments because it can disqualify you. If you need extra help, you can reach out for credit counseling. This service can offer education and advice as well as help reduce interest rates, lower monthly payments, waive fees, and more.
Is Bankruptcy Best?
In some situations, filing for bankruptcy might be your best option. You shouldn’t enter a debt management plan or debt settlement if you cannot pay the debt. It’s important to get advice from a professional if you are considering bankruptcy to make sure this is the best choice.
In a few months, filing bankruptcy in the form of a Chapter 7 liquidation can erase debts like credit card debt, medical debt, and unsecured personal loans. This can be a huge relief for people with no hope of paying their debts.
It’s important to realize, however, that it won’t erase all debt or responsibilities of payments. Money owed to the government, such as taxes and federal student loans, will not be forgiven. Certain types of property can also be seized and your credit score will suffer from the mark of bankruptcy for ten years.
Any cosigners will then become responsible for your debts and if unforgiven debts continue, you cannot file for Chapter 7 liquidation again for eight more years.
Chapter 13 bankruptcy is more like a repayment plan approved by the court. This allows you to keep your property as long as you continue to follow the program, but many people fail to do so. If you succeed, though, the remaining debt will be cleared.
Utilize a Coach for Managing Debt
A Debt Coach is a nonprofit organization that offers many different courses and programs that can help you organize your financial situation and take action to pay off your debt. They have the experience and knowledge to help you assess the best options for your situation.
A Debt Coach will represent you by working directly with collections agencies, lenders, and attorneys. They can help stop the badgering phone calls and talk lenders into waiving fees and lowering interest rates. They can also familiarize you with debt management services.
You can expand your knowledge of all kinds of debts and the strategies for coping with debt. If you need debt counseling, there are several courses and services you can utilize.
Hope Is Here for Managing Debt
It is entirely possible that employing the strategies offered in this article will help you in managing debt and starting your life again. If you are struggling even after following these steps, or you need guidance while you do it, A Debt Coach is happy to encourage you, inform you, and represent you.
If you are ready to own your own life, browse our services and take charge today!