Over the past three decades, Americans have been piling on the debt. In a recent survey, the average household held debt valued at over 105 percent of their pretax income. About half of us have more credit card debt than savings. And about one in five people in the United States have a debt to income load of 40 percent or over. Ending up overloaded with debt in one or more of these categories is not good. A heavy debt burden could hurt your credit rating, and make it difficult to finance critical necessities in your life, like a home or a vehicle to get back and forth from work. High debt often leads to high debt payments each month, which eats away at your disposable income, and can limit your ability to save money, or buy things you need in your day-to-day life. A high level of debt can even affect your physical well being.
It doesn’t have to be this way. There are several steps you can and should take to help manage, reduce, or even eliminate your debt. Doing so can help you start saving – for college, for a home, for retirement, or for an unexpected emergency. And most importantly of all, controlling your debt can help you get control of your life. So if you’re barely making the minimum payment on your overwhelming credit card debt at this point, here are some things to start doing right now.
It is bad enough that so many of us are in debt. Even worse, millions of Americans do not even know how much money they owe, or to whom. Failing to keep track of your debts and the companies they are owed to leads to missed payments, larger minimum payments and an atrocious credit rating. The first thing you need to do to manage your debt is to know what you owe. Compile a list of all of the debt that you owe – credit cards, store credit, car loans, mortgage, et al – and ensure you can match a monthly bill to each one. Start keeping track of how much you are paying, and the balance of each one of these debts month by month. Doing so will help make certain you are paying all of your bills in a timely manner, and start you on the road to managing your debts.
Get a Budget
Once you know how much you owe, the next step is to create a budget. A budget will help you capture your cash inflows (like your monthly salary, gifts of cash, etc) alongside your outflows (monthly expenses like groceries, rent, gas, and of course, all of your debt payments). Your budget can help you determine exactly how much, after paying all of your expenses, you have on hand to pay down debt. It will also show you how much you can save each month as well. A budget can be as simple as two columns of incoming and outgoing cash flows scribbled out on a legal pad. However, many people use computer spreadsheets (you can cheat by downloading a budget template online for one of these, too), or a smartphone app to run their personal finances. No matter how you do it, a monthly budget can help you gain greater control over your all of your debts.
Now that you know how much disposable income you have (thanks to your budget), you can prioritize which debts to pay off first or faster. Not all debts are created equal. Determine how high the interest rates are on your credit or store cards. Debts with a high interest rates are prime candidates to pay down first. If you have some debt with an extremely low balance, you may also opt to pay that off as soon as possible; this will equate to immediate savings the following month, since you will have no minimum interest payment to deal with after the debt is paid in full. While prioritizing your debts, keep in mind that some debts may also provide benefits to you in terms of income; homeowners, for example, can normally deduct their mortgage interest from their income each year, which may shield them considerably from taxes. This is something to take into consideration as your develop your debt payment strategy.
Get another Job
One of the best ways to pay down your prioritized debts faster is to increase the cash you have available each month to pay them down. If you can, try to get another source of income, at least until you feel you have regained control of your debts. Find a part time job, and use your current time off to generate cash and pay down that debt. These days, in the gig economy, it is relatively easy to get a part time source of employment to match your schedule. You can drive for Uber at night, or get a writing gig on a freelancer site like Upwork. If all else fails, you can also ask to work more hours in your current job as well. Use the extra income from your part time gig to pay down your debts faster.
You may have a list of your debts, a budget, and extra income from a part time job, and yet still find yourself overwhelmed with the staggering amount of debt and debt payments you are staring down; don’t despair, get help instead. Seek out a credit counseling service to analyze your situation and help determine a personal strategy to address your debts. In some cases, counselors can help you manage your budget more effectively, and assist you in developing a mechanism to pay down your debt. In cases where paying your current debts are unfeasible, they can also help you work with your creditors to restructure your payments, or your debt. And when your debt situation is extremely dire, they can recommend to you how to file for bankruptcy.
Millions of Americans are suffering under an enormous burden of debt. It is preventing them from saving for retirement, from meeting their basic monthly needs, and in many cases it is making them absolutely miserable, and affecting their health. Don’t wait until tomorrow to start dealing with your debt, it will only be larger. Find out how much you debt you actually have, make a monthly budget, and develop a plan for paying down your debts. Try to earn more income, even if it is just for a short time, so you can pay down your debts faster. And if you are too overwhelmed to deal with your debts on your own, see out help from a reputable credit counselor. A debt free tomorrow starts with you taking control of what you owe today.
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