The risk that comes with borrowing is that you can find yourself struggling to pay back those debts. You need to know what to do if you are struggling with debt because, without the right solutions, you can easily find yourself trapped in a vicious debt cycle. The good news is that there are many things you can do to get out of debt and regain your financial health. This article focuses on what to do if you are struggling with debt and provides helpful and practical suggestions you can apply to turn your financial circumstances around. In the end, it’s important to review what you have learned so you can find the best solutions and options that are tailored to you.
Figure Out How Much You Owe
The first step when figuring out what to do if you are struggling with debt is to determine how much you owe. You need to look at all the different types of dents you have, such as credit card balances, business loans, student loans, and personal loans. This is a good way to start, and once you know the different debt accounts you’re dealing with, the next step is to list them in order of importance. It’s usually better to list your outstanding debt balances beginning with the highest balances. With this method, the goal is to shrink the bigger debts while only paying the minimum on your other debts.
Go through your budget and find ways to free up more room so you can allocate the extra funds towards your debt and pay off everything faster. Another strategy is to start with high-interest debt first. That’s because high-interest debt, like credit card debt, is expensive in the long run, since you have to pay a lot more on top. The sooner you pay it off, the more you can save. To summarize, figure out how much you owe, target the highest balance first and pay more than the minimum to reduce the principal balance faster.
For those who prefer instant gratification, the snowball method might be a better fit for you. This method encourages you to pay off the smallest balance first while making the minimum payments on all your other debts. This will keep you motivated and help build momentum, since it’s easier to pay down the smaller debts. In any case, you can only budget for your debt payments effectively if you know exactly how much you owe.
Negotiate With Creditors
If you feel like the current payment terms for your debts are not in alignment with your financial situation, you need to talk to your creditors. The mistake that many people make is to fail to communicate with the lender when they know they’re going to be late on their payments. Your creditors are more likely to negotiate with you if you approach them first instead of waiting for them to send a late payment notice. Remember, your creditors have a vested interest in getting paid and recovering their financial investment, so you should be able to come to a reasonable agreement with them to pay off your debts.
For instance, they can agree to extend your loan term, lower your monthly payments, or both. It’s especially important to negotiate with your creditors if you run a business. Talk to the business loan service you’re indebted to and consult with lawyers to ensure you’re not violating any legal obligations. You also need to be aware of the potential consequences of your decisions on your credit score. If your creditors are more amenable, it’s even possible to negotiate a settlement of your debts where you end up paying less than you owe. This allows you to move on and is a smart way of eliminating old debts. Once you have come to an agreement with your creditors, you can then explore other debt management solutions to determine how they could further help your situation.
Address High Interest Debt First
When you have high-interest debt and it’s a large balance, the longer you wait to tackle the situation, the worse it gets. That’s because the interest rate on your loan is one of the biggest factors that can affect the total cost of your loan. It’s usually advisable not to take out high-interest debt, but if it’s already your burden to bear, the best strategy is to throw all your financial resources at it. Credit card debt is often the best example of high-interest debt. You should be wary of credit cards that come with a 0% introductory rate. If you don’t clear your balance by the time the promotional period ends, you could find yourself in debt for a lot more than you budgeted for.
When considering what to do if you are struggling with debt, particularly credit card debt, don’t just stick to making the minimum payment. Making minimum payments means that it will take longer to pay off the debt and, in the meanwhile, the amount of interest you owe will just keep accruing until you’re forced to seek legal help because the debt collectors are coming after you. When you have high-interest debt, you can also take control of your life by negotiating with your creditors for a lower interest rate and putting all your extra money toward eliminating that debt. At the same time, avoid accruing more debt on your high-interest credit cards – it’s better to use cash instead.
Consolidate Or Refinance Your Debt
There are two debt management methods that can prove helpful if you need solutions to what to do if you are struggling with debt. The first method is refinancing. Refinancing your debt is helpful if you have high-interest debt. What you can do is look for a lender that will let you borrow money at a much lower interest rate. Then, you can use that money to pay off the expensive debt. In essence, you’re replacing high-interest debt with low-interest debt that will cost less to pay off. This approach can bring some much-needed relief to your finances. Another similar solution is debt consolidation.
The biggest difference is that with a debt consolidation loan, you’re taking out a single, larger loan to pay off smaller, multiple loans. On the other hand, when you are refinancing, you’re usually swapping out a single, expensive loan with another single loan that’s much cheaper. Therefore, you should opt for debt consolidation if you have many debt accounts that you’re struggling to keep track of. When you consolidate your loans, you bring them all under one roof, and it’s much easier to pay them off since you only have to make a single monthly repayment. Make sure your debt consolidation loan carries a much lower interest rate for it to make sense financially.
Build An Emergency Fund
When figuring out what to do if you are struggling with debt, you still need to take the time to reevaluate your budget and make room for building an emergency fund. This might be the last thing on your mind, because it might feel like your budget is already tight enough. However, having an emergency is one of those essential and responsible things to do, much like seeing a will and trust lawyer to ensure you have your estate plan in place. Ideally, you should have an emergency plan that’s big enough to support you for at least three months, but if you’re still paying off your debt, you may only need enough to cover one or two unplanned expenses. The important thing is to have some money saved to cover unexpected expenses, so you don’t have to resort to borrowing each time.
Find Ways to Generate More Income
When looking to pay off your debt, it helps to find ways to generate more income. The more you earn, the more you can divert towards your loan payments, and the faster you can get out of debt. Remember, you can also get more money by reducing your expenses. Ways to reduce your expenses include spending less on food by cooking more instead of eating out. You can also take your lunch with you to work, avoid impulse buys and stick to your budget, find lower rentals, cancel your non-essential subscriptions, and reevaluate all your unnecessary expenses.
There are also numerous ways to earn more income. You can start by asking your employer for a pay raise, logging in some overtime hours, getting a second job, making money blogging, selling off some of your belongings, or looking for ways to make money online.
Talk to a Credit Counselor
If you need help figuring out what to do if you are struggling with debt, talking to a credit counselor can help. There are many benefits associated with credit counseling, and all of them can help you become debt free. The ultimate goal of credit counseling is to provide you with the education you need to pay off your debt as smartly as possible and avoid debt in the future. A credit counselor is trained and well-equipped to help people who are struggling to pay off debt and offer you insight into specialized issues, such as social security law. Overall, credit counseling can help you regain control over your financial life. Make sure you find a certified credit counselor that can help you deal with your finances.
Sometimes, dealing with your debt alone can be overwhelming. The good news is that there are many non-profit credit counseling agencies where you can find a certified credit counselor you can speak with. The right counselor will sit down with you first to evaluate your existing financial circumstances. They will review your assets, debts, and expenses to come up with a tailored debt management plan that’s suitable for your unique situation. They’ll also help you establish a workable budget that allows you to pay off your debts at a comfortable pace. When you have an actionable plan to follow and adopt the right debt relief strategies, you’re already on the right path.
Avoid Bad Debt In the Future
There are many approaches you can take when figuring out what to do if you are struggling with debt. However, you should also look at the bigger picture and look for ways to avoid ending up in the same situation. Struggling to pay off your debt comes with many negative consequences. For instance, you can end up looking for a bankruptcy attorney or a bail bond agent to help you out after failing to meet your financial obligations. Some people also end up selling their assets, like selling a home, to pay off their debt while incurring heavy financial losses.
Being in too much debt can also negatively impact your credit score, making it difficult to borrow in the future. Not only that, but it can get in the way of securing your dream job or a great apartment rental. That’s because employers and landlords usually check your credit score to ensure they’re dealing with someone who is financially responsible. In some job roles, such as law enforcement, those with too much debt are usually rejected because they may be predisposed to accept bribes. Therefore, you need to adopt the right financial habits and ensure that your debt-to-income ratio is as low as possible. Always look for the lowest interest rates possible and understand the factors that affect your credit score, such as credit utilization and credit mix.
The bottom line is that although it can be challenging to dig yourself out of debt, it’s still possible. Now that you know what to do if you are struggling with debt, the next thing is to apply what you have learned. When you follow these strategies, you’re taking many steps closer to a debt-free life, and you’ll achieve your goal if you stay consistent. When it comes to what to do if you are struggling with debt, you need to be careful not to let financial stress get the better of you or derail your life. Keep your lifestyle healthy and try to pay your bills on time. Some people find that it’s often easier to ignore their debts for a while, but this will backfire later, so it’s better to face your fears and figure out ways to prioritize your debts. While at it, don’t let your debts take over your life, and try to stick to your daily routine as much as possible. That’s the path to better financial, physical, and mental health.