Dealing with debt is never a fun experience, but it’s one that most people will have in their lifetime. One study found that consumer debt hit an all-time high in the year 2020.
Whether you’re paying off student loans, a house mortgage, an auto loan, credit card debt, or some other type of loan, it’s easy to feel overwhelmed by the crushing stress that debt brings. Some people become so overwhelmed that their debt begins to control their life—this doesn’t need to be the case!
Debt is something that can be dealt with in a relatively painless and easy way; it just takes planning and some financial discipline. Want to take back control of your life and stop living under the fear of debt collectors? These tips will be a good starting point.
Look at the Big Picture
The first step toward a better financial future is to take stock of your finances where they are right now. Most people know less about their debt than they realize. This study found that 34% of Americans have no clue how much of their monthly income goes toward their debt, and that’s a problem.
In order to know how much to put toward your debt, you need to know how much you make. Sit down with everyone in the household who brings in money and find out these two numbers: your monthly income and the total amount of money you owe. Once you know these, you can plan what to do about it.
Pay the Minimum Each Month
Always pay (at least) the minimum monthly amount due for each debt or loan. This way you don’t end up paying fees and owing even more. By knowing your monthly income, you should be able to calculate the absolute smallest amount that you can allocate to your deficit, and you will slowly chip away at it each month.
Maybe you want to pay off some of your dues sooner rather than later. If you have the funds available to pay more than the minimum, do it! If you follow the 50/30/20 rule, you should have 20% of your monthly income dedicated just to paying off debt. Then you can have the other 50% dedicated to the things you need each month, like groceries and clothes, and the remaining 30% dedicated to things you want, like entertainment and fun activities. There will always be situations when money is tight, but work to stay diligent with this rule and your debt will shrink in no time.
If you have multiple loans and lines of credit, one helpful way to get them in order is to consolidate them into a single debt consolidation loan. These types of loans allow you to take all your debt and pay it off so that you’re making a single monthly payment. These loans generally come with a lower interest rate, so you’re paying more toward your actual debt, and less toward interest fees that serve you no purpose.
Stop Adding to Your Debt
One of the biggest problems people run into when accumulating debt is that they add to it faster than they pay it off. This results in a deeper hole for you to try to climb out of. It can be easy to apply for a new line of credit when your finances are running low, but it isn’t always the best choice.
Stop adding to your debt and instead make a plan to escape it.
- No new credit cards until you’ve paid off your old ones.
- Don’t use your existing credit cards until they’re paid off.
- Don’t trade in your car for a new one until you’ve paid it off completely.
- No new loans until the old ones are paid off.
The additional money will always get tacked onto the back somewhere, and you will still end up paying it all down the line.
Take Back Control
By overseeing your own debt, you make decisions on how to tackle the situation. If you plan it out the right way and make smarter money decisions, you’ll start paying down your loans at a doable pace. Soon you will be debt free, and one step closer to your dreams and goals.
Another big part of maximizing your financial stability is increasing your ability to self-discipline. Check out our blog “Success Demands Discipline” to learn more about increasing your discipline.