The average American household harbors over $150,000 of debt.
Debt is financially crushing and makes paying for necessities challenging. Some people lose their cars, homes, and other valuables because they cannot make their monthly debt payments.
If you’re finding difficulty managing debt, you’re not alone. Here are some steps you can take today to reduce your debt and start preparing your finances.
Create a Budget
Budgets show you where you’re spending your money. Without a budget, you are spending money without knowing where it’s going.
If you don’t already have a budget, create one to see how much debt you’re in and where your monthly payments are going. Knowing your income allows you to structure your budget in a way that allows you to pay your bills on time.
You might be wondering, what is debt counselling? Debt counselling is when you speak to a financial advisor and they walk you through your debts. They also work with your creditors to negotiate new payments that make it easier on your finances.
Debt counselling is helpful for people who need an extra pair of eyes on their finances. It also alleviates a lot of work on your behalf.
Consolidate Your Debt
Sometimes debt reduction needs to happen with consolidation. Debt consolidation means combining all or most of your debt so you have a smaller monthly payment instead of several large ones.
If you have a lot of debt, you likely have varying interest rates which makes your payments high. By consolidating your debt, you may reduce your interest to one rate and one payment, making it significantly less stressful. Make sure you shop around for the best rates before agreeing.
Don’t Take on More Credit
When you’re trying to get out of debt, limit your purchases to things you need only. Avoid making any large purchases or even small ones as you’re working on chipping away current debt.
Continuing to purchase groceries or other necessities on a credit card with a high balance only makes paying off that debt more challenging. Find a way to make important purchases without using a credit card.
Transferring your balances to another card with a lower interest rate may help reduce your monthly payments. Although, this may only work well if you have a good credit score and make your payments on time. In order to use another credit card to transfer your balance, the credit company needs to check your credit, which puts a hit on your credit report.
Be sure to shop around for cards with low-interest rates. Occasionally, companies run specials or incentives like 0% interest for new customers. If you clinch this rate, try to pay off the debt as soon as possible to save yourself money.
Reduce Your Monthly Debt Payments
By reducing your monthly debt payments, you can pay off debt and land in a more financially stable place. Getting out of debt is challenging, but the rewards are worth it.
Staying financially healthy is key to reducing financial stress. Learn more about keeping your finances in order on our Finance page.