Debt, no matter the amount, can make you feel like you’re barely treading water. But despite how lost at sea you may feel, you’re not alone! So many of us struggle to manage debt and climb our way out of an unhealthy financial situation. The good news is, there’s a positive outcome to this challenge.
In this post, we address two common questions on how to manage debt with actionable steps that’ll help you regain control of your finances and strengthen your financial health.
How Do I Get My Debt Under Control?
The short answer on how to get debt under control is to make a solid commitment to cut your current spending and make strides in your payments. With five clear steps, you’ll be able to efficiently manage your debt:
1. Build an Emergency Fund
In order to avoid accumulating more debt, you need an emergency buffer. Start with building a $1,000 rainy-day fund. Just remember to top it back off if an emergency arises, and you need to tap into it.
2. Create a Strict Budget Plan
In order to know how much money you can throw at your debt, you need to have all the pieces. Create a detailed budget that allocates where all your money goes. List all your income and any essential expenses you have (i.e. rent, mortgages, car payments, minimum payments on debts, subscriptions, etc.). If you list something that’s not essential or that you’re not really utilizing (i.e. cable bill, subscriptions, gym memberships you don’t use, etc.), consider it a luxury that you can’t afford at the moment. After your debt is manageable, by all means reintroduce some of these additional expenses as you see fit.
3. Make a Detailed List of All Your Debts
List out every single debt you have—credit card debt, student loans, auto loans, mortgages, etc. If you owe money for something else, list it. You’ll want to write down the creditor’s name (i.e. whom you pay), the debt amount, the interest rate, and the monthly minimum-payment amount. Lay it all out, so you can see what you owe in its entirely.
4. Plan Your Payoff Strategy
With that handy list of debts, rank them in an order you wish to pay off. Now, there are many differing opinions on how to tackle your payoff strategy, but you need to do what is best for you and what motivates you to stay committed.
Here are two common approaches on debt payoff strategies:
- Begin tackling the debt with the highest interest rate, as it costs you the most money for them to hold on to your debt. Then, move to the next highest interest rate.
- Start paying off the smallest debt you have, so you can quickly feel like you’re making progress in your debts. Then, move to the next smallest debt amount.
Once you’ve decided, be aggressive with your payments on that debt, while making the necessary minimum payments on your other debts. Any spare cash you have, throw at that one payment until you knock it out! Then, head to the next debt on your list.
5. Commit to Timely Monthly Payments
It’s so crucial to make your payments on time in order to stay in control of your debt. Being late on payments not only will cost you hefty late fees, but it damages your relationship with your creditors and will cause your interest rates to skyrocket. If you struggle with remembering to make payments, opt in for all autopay opportunities, so it comes out automatically. You can also program a reminder or event on your phone calendar to ensure you won’t miss a payment.
How Can I Clear Debt Quickly?
If you do feel lost in debt, you rightly have pondered this question. Because debt can weigh so heavily on us, we desperately want to know how quickly we can shed the excess weight. While the speed at which you can become debt-free varies on factors like income, amount of debt, etc., ultimately there are three ways you can accelerate your debt payoff:
1. Knock Out & Repeat
As you begin your fight against debt, stay committed until the end. As you pay off one credit card, lump all the money you were using to make payments to that card on to the next debt payment. Resist the temptation to use that money elsewhere in your budget. By drastically increasing your next debt payment, you reduce the length of time it will take to pay it off. This “snowball” method is widely used and incredibly effective to tackle debt.
2. Decrease Your Interest Rates
There are a number of ways you can lower the interest rates of your debts, and this will allow your payments to make more of a dent in your overall debt amount, rather than go towards interest. Here are some ways to try to minimize how much interest you’ll pay over time:
- Interest Rate Negotiation—If you’ve been a loyal customer who consistently pays on time, talk with your creditors about if they’d consider lowering your interest rate. It’s worth a shot!
- Debt Consolidation—Instead of having several high-interest debts, you may qualify for a debt-consolidation loan with lower interest. This is a powerful debt-fighting tool that will allow your payments to work harder at cutting through the debt much faster. Plus, you won’t have as many monthly payments to remember.
- Balance Transfers—You may qualify for a credit card with a 0%-introductory or promotional interest rate that you can use to transfer your debt balance. Though most credit companies charge a nominal fee for balance transfers, it’s still likely to save you money in the long run because you’ll save so much on interest and make serious strides within that 0%-interest-rate period. Imagine if you could wipe out your debt within that interest-free promotional period—bye, bye debt!
3. Boost Your Income
The more money you have, the more money you can put towards payments to squash your debt. While this may seem difficult to pull off, hear us out. Increasing your income from your job will certainly help you pay off debt faster, but there are other ways to boost your monthly income. Consider taking on a side hustle (i.e. driving for Uber or Lyft), temporary part-time job, etc. It doesn’t have to be a permanent situation for you, but it will help you quickly shed the debt. You may also try selling off items you no longer need or use. This way of boosting income is highly underrated. You’ll be surprised how much money you can rake in from things you no longer need!
If you’re struggling to manage your debt or find a good debt payoff and savings balance, you may consider consulting with an independent financial advisor who will offer an objective, nonjudgmental perspective on your finances, informing you of all the debt-consolidating options you have available.
Contact Focus Financial Today
At Focus Financial, our team of experienced independent financial planners will work closely with you to understand your unique financial situation and help you create a financial plan that keeps your financial goals as the driving focus. Let us help motivate and cheer you on in your debt-conquering journey as you begin to strengthen your financial health. Contact us today to find an independent financial advisor near you!