When we start talking to people about how much debt they own, we are often surprised to find that most people are unaware of what comes under the definition of debt, and even fewer have any idea how to get out of it.
Seventy-eight percent of Americans are living paycheck to paycheck, which means they are unable to make any savings and are badly captured in the debt trap. Debt is essentially all money you owe, whether it be to credit card companies, car loans, student loans, mortgages, home furnishing loans, retail cards from Macy’s, or the Banana Republic; all this qualifies as debt.
Recognize the Problem
The steps to resolving a debt problem can be taken once you acknowledge that you have unmanageable debt. Hence, you need to make a conscious effort to understand that you can no longer carry on with the current lifestyle or ways in which you are spending if you want to alleviate yourself of your debt burden. If you keep ignoring the issue and deferring it until tomorrow, then you will never be able to get ahead of the situation.
Calculate What You Owe
The most crucial step is to sit and put into a spreadsheet all the money you owe to your various financiers and list all other sources of debt that you have, including your credit cards and loans. Next, you should carefully review the payback timelines. You should also categorize some accounts that may be small enough to settle easily, and those that must be settled at once and then gradually roll over to solve the more significant accounts. A step by step review of several types of debt you owe helps significantly in creating a plan of action to paying it off.
Transfer the Balance to Low rate accounts
If you are carrying a lot of credit card debt, it may be wise to conduct an online search for companies offering a balance transfer promotion. Several companies, like Credit Karma, Bankrate, and Nerd Wallet, offer a 0% balance transfer option for the first 12 months or so. Do your research and see if you can negotiate with them to transfer your balance at 0% interest rate for a year or 18 months. This will give you some time off from accruing interest on your debt while you can better manage your earnings and spending. Debt consolidation is a bad idea when the interest rate on the consolidated amount is higher than what you are paying at the moment on your debt.
Look at Debt Refinancing Option
These days mortgage rates are really low, so you may even consider transferring your credit card debt to mortgage debt. This option is usually considered once you have already paid a significant amount towards your house payment and want to consider drawing against the equity on your home purchase. Some people do this as credit card companies charge a high-interest rate of 14% to 15%, whereas mortgage financing is available at less than 4% since the beginning of the year 2020.
Track your Spending on a Spreadsheet
While tedious, keeping track of your expenses is the most crucial thing you can do if you want to ensure you do not go overboard with your spending, especially in the holiday season, when sales and offers can be irresistible.
An excellent way to do this is to switch to making online purchases only. This helps in keeping our unnecessary purchases to the minimum. So, for a certain period, you may consider not going out and making all your grocery or other necessary purchases online only. This makes even more sense these days when we are all fighting against the Coronavirus pandemic, and staying at home will help save us from excessive spending and unnecessary exposure to the virus.
Open a Savings Account
Another great way to avoid the debt trap is to start planning for the long term future today. Regardless of age, you should consider opening open an FDIC-insured savings account, and as the balance starts to increase over the months and years, and can help you considerably in negotiating with creditors to settle your debt.
Negotiate with Creditors
Several companies help individuals settle their debts by negotiating with creditors on your behalf. This process is often referred to as “Debt settlement.” Hence, you may consider this option once you have evaluated the pros and cons of engaging a firm for debt settlement.
Sometimes, depending on your current cash flow, a debt negotiator may be able to convince the creditors to settle at lower payments. This way, you will be able to get rid of the debt and improve your credit permanently. This may be a better option than filing for bankruptcy at times because bankruptcy has long term negative impact. The information about a bankruptcy stays on your credit report for up to 10 years.
Manage your Cashflow
It is vital to track your spending and your earnings, to manage your finances better. Cashflow can be improved in two ways, either by increasing your earnings or by decreasing your spending. There are several online applications like Mint.com or QuickBooks, that can help in managing your expenses. However, you can handle this task on a simple excel sheet as well.
If there is a second job you can take up to increases your earnings, then it is a promising idea. Likewise, you may even consider selling off any excess inventory that you may have lying around in your home or warehouse if you own a business.
Many people sell their unused or vintage items online on sites such as eBay and Etsy, and others even take advantage of old school brick and mortar consignment shops. Once you have this extra cash in hand, you can use this for necessary payments and curb your credit card swipes.
On the other hand, go slow on your spending. If there are any purchases that you can defer to a future date, you must consider doing this. Skip eating out or buying expensive brands for a specific period until you can get your debt bad in the desired shape. Once your earnings increase and your expenses go down, then your cash flow will automatically improve.
Final Thoughts
Getting our debt isn’t easy, but it isn’t impossible. If you find yourself struggling to formulate a plan that lets your business continue to operate while making your payment commitments, it may be time to reach out to a reputable debt management expert to help you determine the best approach for success. Our negotiators are standing by to assist you in your journey to financial freedom. Call us today to learn more about how we can help you reduce your monthly debt expenditures and immediately alleviate your debt burden.
