6 ways to bounce back from crushing debt levels
With millions of Americans out of work and much of the economy still at a standstill, more and more people are taking on more and more debt.
“First, don’t panic.” says Leslie Tayne, a New York-based debt settlement attorney. “Debt goes up and down in your life, and sometimes you take it when you don’t want to.”
It is one of those times when many people are forced into debt due to unprecedented circumstances surrounding the coronavirus pandemic. In fact, nearly a third of Americans face lower income because of the coronavirus.
The first step to getting out of debt is to focus on your goals, says Tayne. Once you’ve set your goals, there are a few other things you’ll want to consider.
Here are six tips for getting over your debt.
1. Evaluate your budget
The first step in tackling debt is to look at where your money is now. Take the time to review your current budget and compare it to your financial goals – are they aligned?
“Be realistic and honest with yourself about what you spend each month.” Tayne said. “When trying to get over your debt, you need to understand where your money is going and make decisions about where the money is going each month. “
If your goal is to pay off your debt but a good chunk of your income goes to shopping and other nonessential things, then it’s time to reassess and cut spending to the bare minimum, says Tayne.
If you don’t yet have a budget set, now is the time to do so, as it can help you avoid getting into more debt. There are many methods of budgeting, but the 50-30-20 budget is easy to understand. This method divides your income into essentials, wants, and savings. Another option is to use budgeting apps, which do all of the heavy lifting for you.
2. Take stock of your debts
In order to decide where you should start to focus your efforts, you need to understand how much you owe and how much interest it is costing you. Once you understand this, you can more easily decide which debt repayment strategy is right for you.
“Pay at least the minimum on your cards and other bills each month, and set up automatic payment if you have a history of late payments,” says Tayne. “Then pay as much as you can afford each month [what’s left over in your budget] to the account you chose and make sure that you consistently make that additional payment each month.
There are three types of debt repayment strategies to consider:
- The Debt Snowball: An approach where you gradually pay off your debts from the smallest amount to the largest. This method is encouraging because you can see the progress you are making earlier.
- The avalanche of debts: This method is similar to the snowball effect, but rather orders the debt by interest rate. You’ll prioritize paying off the debt with the highest annual percentage rate (APR) before moving on to the next one, and so on.
- Debt Consolidation: If you have various debts to pay off and are struggling to keep up with them, you may want to consider debt consolidation. This method consolidates all of your debts into one loan with one interest rate.
Debt consolidation alone won’t eliminate your debt, but it could seriously reduce the amount of interest you pay over time. This is a great option for those with a handful of debt because it makes it easier to keep track of it all.
Here are some popular debt consolidation options:
- Zero percent introductory APR balance transfer: Good for those who have accumulated credit card debt; However, note that the zero percent rate is only valid for a limited time and there are often charges ranging from 3 to 5 percent associated with the transfer.
- Refinancing: Good for those who have student loans split among various lenders.
- Personal loan: Good for those with high medical debts.
3. Contact creditors and lenders
It’s important to understand what’s on your credit report, especially details like how long the debt stays on your record.
Sometimes creditors and lenders can help – all you have to do is ask.
“If you haven’t missed any payments and have been a good customer, you may be able to apply for lower interest rates and opportunities for different products that will help you lower your expenses. Tayne said.
It’s by no means guaranteed, but it never hurts to try. If you are able to get a lower interest rate, it could help you get rid of your debt much sooner, which could be a huge burden on your shoulders.
Tayne also suggests checking to see if your bank offers payment deferrals, which is not uncommon in the age of coronaviruses. In fact, the list of banks offering relief due to the pandemic is quite long. This option could help you avoid charging high interest rate credit cards.
“Remember that part of the rebound can mean [taking] a blow to your credit and sometimes it’s OK, ”says Tayne.
4. Don’t miss the discounts
If you have expensive bills that are over budget, then you should see if there is a way to negotiate them down.
In fact, there are digital services designed to help you do just that.
Trim, for example, combs through your banking information and looks for areas where you could save money by cutting an expense or negotiating a better deal. It’s a great option for those who have expensive phone and cable bills and need help lowering them.
“If your mobile carrier doesn’t want to budge, consider going prepaid or look for a ‘switch’ offer. Competing companies often have offers like a prepaid debit card to pay off the remaining balances on your phones when you change phones, ”says Tayne.
The same goes for insurance. It is almost always beneficial to shop around and get quotes from other companies. Even if you don’t plan on leaving your current business, they may offer an equal rate, explains Tayne.
5. Organize your finances digitally
Keeping track of your finances can be a difficult task, but it doesn’t have to be, especially when you are scanning them.
Personal finance services like Mint will organize your finances in one convenient place. The app lets you create a budget, set goals, and alert you when an invoice is due, among other important things.
It’s also a cool way to see your progress as you work on crushing your debt.
6. Look into the sideways hustle and bustle
If you are suffering from a lower income because of the coronavirus, getting a side job could be a great way to increase your income.
According to a Bankate survey, the average monthly income for secondary scammers in 2019 was $ 1,122. This extra money could help cover major expenses or even pay off debts.
Some popular side concerts to consider include:
- Dog Walk (Rover)
- Become a delivery driver (UberEats, GrubHub or Seamless)
- Sell your artwork or skills online (Etsy, Skillshare, Shutterstock, etc.)
- Sell goods you no longer need (Facebook Marketplace, Craigslist, LetGo, etc.)
There are also apps to help you find a side gig, like Steady, which you might want to check out.
At the end of the line
It may take longer than you’d like, but it’s possible to bounce back from high debt levels – you just need to be realistic about the timeline and focus on your goal.
“You may not be able to solve it in a month,” says Anu Shultes, CEO of LendUp. “It’s about creating new habits. You have to tell yourself that this is going to take time and keep working on it.
Photo courtesy of JGI / Jamie Grill of Getty Images.