With credit cards being so prevalent these days, it’s not uncommon for the average American to accumulate debt with time, and it’s practically a necessity if you want to have a good credit score.
Of course, not all debt is created equal, and loans you take out for a home or a car will not be viewed the same as your credit card debt or any other debt you’ve taken on during a time when the market had high-interest rates.
If you’re not careful, you could easily lead yourself into a debt trap that most don’t know a way out of, and it’s exactly why we’ve put together this article.
Even if you do find yourself in this less-than-desirable situation, there’s no reason to panic, and we’ll guide you through all the things you can do to get yourself back on track, financially speaking.
One of the safest ways to slowly ease yourself out of debt is to opt for a consolidation, which is essentially taking out a new loan, preferably one with a better interest rate, and using it to pay off all your debt as a whole.
By doing this, you’re combining all of your outlying debt into one, singular payment and allowing yourself to focus on other things rather than being stretched thin from all the constant payments you’d normally be making.
On top of combining all of your debt into one monthly payment, consolidation also gives you the opportunity to negotiate for better payoff terms, lower interest rates, and even a lower EMI.
This is a great option for anyone struggling to keep up with all of their monthly payments that are overdue and will give you a lot more leeway in terms of the resources you’re working with.
Pay off the expensive loans first
If consolidation is out of the question, there are still things to be done, and you could start off by paying your high-cost loans first.
Doing this saves you from all the sky-high interest rates tied to these loans and effectively saves you money that would otherwise be lost.
Of course, this does imply that the interest rates on your other debt will pile on, but if you plan things properly, you’ll be able to stay ahead of the curve and keep your finances running smoothly.
The first step is to identify which of your loans is the most expensive, after which you’ll want to work on a strategy to pay it off as soon as possible.
Budgeting is definitely one way to do it, but there are dozens more for you to try.
Increase your income
This one can be tough, especially if you’re already working a steady 9-5 and can’t risk the stability of your employment by taking on a side hustle.
Time is everything, and working 8 hours a day leaves a lot to be desired, as you’re inevitably going to commit another hour or two to your daily work commute, and if you factor in at least 6 hours of sleep, you’re left with 8 hours to devote to your personal hobbies, family and loved ones.
However, paying off debt doesn’t take forever, and if you’re able to make some sacrifices, you could potentially do some overtime or find a side hustle that isn’t too time-consuming.
One thing to keep in mind is the fact that additional income also means additional taxation, and you’ll want to take note of all the extra income you’ve made during this time come tax season.
Seek professional help
Finally, if nothing seems like it’s working, it may be time to hire a professional at dealing with debt.
Financial advisors are a necessity for anyone looking to keep their finances in check, and some also specialize in dealing with debt.
This will cost you a pretty penny though, and you’ll want to make sure you can afford one before presenting your case to them.
Thankfully, some financial advisors will offer you the ability to make monthly payments, which is essentially creating more debt in the long run, but it’s an immediate solution to the current problem you’re facing.
Some agencies may even offer you a chance to do the negotiating with your creditor on your behalf, which may give you a better chance at securing a lower interest rate on all your outlying debt.
This is particularly effective when combined with debt consolidation, and will make the job of your financial advisor much easier.
Debt is a scary word, one that most low-income Americans fear, but it’s not one that can’t be dealt with, as demonstrated above.
It’s all about committing to repaying your outlying debts and the rest will sort itself out.
Whether it’s by consolidating all your debt or by hiring a financial advisor to do it for you, getting rid of debt is crucial and necessary in order to enable financial progress and stability in your future.