Are you struggling with high levels of debt? Do you feel like no matter how hard you try, you can’t stop spending more money than you make? If that’s the case, the good news is that you’re not alone. According to the American Debt Help Organization, total U.S. consumer debt as of 2019 is at $13.86 trillion, and on average, every household with a credit card carries about $8,398 in credit card debt. Additionally, because of the global economic recession caused by COVID-19, these numbers continue to increase at an astronomical rate. It can often feel like a never-ending battle between your paycheck and expenses. Fortunately, you have the power to change that. In order to begin climbing your way out of debt, it is critical to develop a comprehensive and sustainable strategy you can follow.
Step 1: Analyze the Types of Debt You Have
There are many different types of debt that call for a wide variety of strategies and timelines to pay off. Start by summarizing all your outstanding debts: student loans, credit card, auto, or home to help you get a full understanding of what you are dealing with. Analyze the different amounts you owe and identify which debts incur the highest interest rates; those are the ones you need to prioritize.
Step 2: Build a Budget
Assembling a financial plan is a crucial step in debt management, and you can start this process by building your own comprehensive budget. Visualizing your income in relation to your expenses will help you stop spending more than you are actually bringing in. This will help you follow a more regimented plan so that you can begin minimizing the amount of your spending that goes towards wants, expensive habits, and other variable expenses as soon as possible. This step is crucial to prevent incurring additional debt and making sure you start paying your bills on time.
Step 3: Generate New Income Opportunities
Finding new opportunities for making money can provide you with an extra inflow of cash that can go towards tackling your debt. Acquiring a side hustle or an additional part-time position can create a massive difference towards becoming debt free much more quickly. During the COVID-19-induced economic recession we are facing, finding new sources of income has become increasingly difficult. However, you can still try to capitalize on new opportunities in the job market as a result of the pandemic and adapt a new strategy for finding work to account for the current climate. It’s also a good time to do other tasks you might have been putting off to generate cash flow such as filing old tax returns, insurance claims, and selling any unwanted items you might have piling up.
Step 4: Do Your Research
Scour the internet and look for any online resources that can help you through this process. Look for different debt relief services, counselors, or management resources; many of these are accessible for free online. Listen to videos and read articles on different professional opinions and theories about debt management strategies. For example, a common debt management tactic proven to be successful is the snowball method. This strategy involves paying off your accounts with the lowest balances first while paying the minimum on larger debts. Once those are paid off, you continue the process for the next largest debt one by one until you are finally debt free. Information on this strategy and many others is all available online. Because this issue affects so many people, there is a lot of information on this topic that you can take advantage of.
Step 5: Ask for help
Don't be afraid to ask for help. Try contacting your credit card company to negotiate interest rate reductions; they’ll often assist if you've been a loyal and reliable customer that’s been keeping up with payments. Ask a friend who might have had a similar situation to learn about other approaches. Other alternatives include asking your boss for a raise, or if need be, asking family for help with a solid plan to reimburse them. The worst thing they could do is say no, which doesn’t leave you any worse off than before.
Step 6: Get on it now
Making a plan to pay off your debts as soon as possible will help increase your wealth in the long run. It will help minimize the damages along with the stress it causes by helping you regain some peace of mind. Make sure the plan you develop is one you can actually see yourself following through with. Know that with some diligence you can achieve your goal of becoming debt free.
Now that you know how to take on reducing your debt, the time to start is now. Don't wait any longer to start tackling this challenge head on, and use the steps in this guide to help lead the way. Soon enough, you’ll be thanking yourself for doing so and for helping lift the weight of this burden off your shoulders.