It’s the rare person who has never had a debt issue. The key is to nip any burgeoning problem in the proverbial bud before it grows into something that is unmanageable, and in fact can make your life miserable. With that in mind, here’s how to resolve debt problems – and avoid getting into trouble to begin with.
Rein in That Spending
There’s no financial approach that can help you if your spending is out of control. You must establish a budget and figure out how much you’re doling out monthly, and on what. Those “little” expenses such as those daily gourmet coffees absolutely add up. Until you get a hold of your finances, make your own coffee, and look for other ways you can save. Then, put that money toward your debt. Yes, your budget should leave some room for things like entertainment and restaurant visits with friends, so that you stick with it, but it must be balanced with monthly obligations you simply must meet.
Put Together an Emergency Fund
There’s no way you can get out of debt and stay there if you’re pulling out your credit card for the inevitable emergencies – car repairs, etc. – that happen in life. Aim for $1,000 to start, then work to add another $1,000 or so. After that, keep building your fund so that you eventually have up to six months of living expenses.
Aim for a Low Debt-to-Income Ratio
The rate shows how much of your money is going to monthly debt and determines your borrowing risk. Making sure your debt is manageable is essential to good financial health. To find your number, divide your debt payments by your income, then multiply that by 100 to arrive at a percentage.
Figure Out How Much You Owe
You may not want to, but to solve your debt problem, you simply must determine your debt load. To do so, write down all your debts, including each balance, creditor, interest rate, monthly payment, and when each payment is due. Update your list as you eat into your debts. Not only will this keep you focused, but it will also motivate you as you continue to see progress. You can also learn more from Freedom Debt Relief, which can help you quickly resolve your high-interest debt and save you from eventually contemplating bankruptcy pros and cons.
Make Payments on Time
You’ll continue to languish in debt if you’re late with payments and are assessed late fees, which could mean higher finance charges as well as a higher rate. You may want to use the calendar function on your tablet or smartphone to alert you when payments are due, even if a monthly calendar is required. Do not wait until the next due date, however, if somehow you still miss a payment. You don’t want the credit bureaus involved.
At Least Make Minimum Payments
You won’t really get anywhere, in terms of getting out of debt, by making minimum payments on credit cards. However, at least you’ll keep your accounts in good standing and avoid late fees. Just be sure to pay cash for purchases until you’re in better financial standing. By then, you’ve hopefully developed better spending habits.
Choose a Method for Paying Off Credit Cards
There’s the “avalanche” approach, which has you throwing everything you have toward paying off the credit card with the highest interest rate, while making minimum payments on your other cards. Once that card’s cleared, you tackle the one with the next-highest interest rate, and so on.
Then there’s the “snowball” method, which entails paying off the card with the lowest balance, then the next-lowest, etcetera, while continuing to make minimum payments on the other plastic, until your total amount of debt is zero. This approach works better for those who need the quick jolt of accomplishment to keep going.
Ultimately, how to resolve your debt problems depends on a variety of factors, including your short- and long-term goals and your debt load. If you’re overwhelmed by debt and can’t see yourself erasing it on your own, you may want to contact Freedom Debt Relief.