Managing Debt
Debt can be exhausting—especially if it’s extensive. It can be difficult to look at credit card balances and other debts and not know what to do. If you need help managing your debt, we can help. In this in-depth guide, we’ll break down our top debt management tips to keep your balances low, while offering tools to help you stay on track of your financial goals.
Get Your Credit Reports and Accounts
One of the first things to do when managing debt is to get a good understanding of your credit. Start by getting copies of your credit reports from all three major bureaus—TransUnion, Equifax, and Experian.You’re entitled to one report per year, but due to the COVID-19 pandemic, you can get weekly reports, so you have the most updated information. Once you have your reports, review them thoroughly, verify accounts are correct, and note any inaccuracies that need disputing.
You also need your credit scores. With ExtraCredit®’s Track It feature, you can unlock scores from all three credit bureaus. You get 28 FICO® scores and get your credit graded in a snapshot, which shows your credit’s strongest areas and where you need to improve.
Along with your credit reports, gather all the account information and recent statements off all your accounts such as:
- Student loans
- Personal loans
- Mortgage
- Auto loan
- Credit cards
- Store cards
Take Inventory of Your Finances
Now that you have all the necessary documents, now you should take inventory of all your finances. To create a solid debt management plan, this is a necessary step, even if it’ll take some time. Each item on your itemized list of financial accounts should include the creditor’s name, account balance, monthly payment amounts, and interest rates.
To become debt free, it’s important to understand where your total balances stand and how long it’ll take to pay off any outstanding debt. Sometimes, a period of anywhere between 30 and 60 months could be enough. But that all depends on your overall balance and how much you can spend on payments. Depending on your time period, you normally calculate your payments by dividing your balances with the time period.
If you’re dealing with consumer debt management, like credit cards, use tools like a credit card payoff calculator to estimate your payment amount.
When calculating your payments, also consider how much income you’re bringing in. This can affect how much you’re able to afford in monthly payments. If you want an easier route to making credit card payments, you can use an app like Tally, which can automate your credit card payments adjusted according to your goals and budget.
Seek Lower Interest Rates
As with any debt-repayment plan, there are drawbacks to managing debt efficiently. One of these is that your interest rates will continue to accrue even as you’re making payments. This can further extend how long you take in paying it all off.
You’ve probably already noticed the one hitch in our monthly payoff plan above—interest keeps accruing as you pay your debt off. The longer your planned repayment period, the more interest you’ll pay. Depending on your interest rates and the amount you pay off each month, the interest you accrue could end up lengthening your repayment period substantially.
So, to help curb this, you can try to secure lower interest rates. You can do this a couple of ways, like lower interest credit cards with balance transfers, and low interest loan options. Here are a couple of credit cards to consider. Keep in mind that to get a lower interest credit card, most require a good credit score, so make sure your credit is in decent standing before applying.
You can also use low interest loans to help consolidate or refinance debt. What’s important here is that the loan has a lower interest than your current loan. If you have a home or car loan, talk to your lender about refinancing to get a lower interest rate. Look for a consolidation loan for credit cards and personal loans to lump your payments together into one, making it easier to manage. And for student loans, talk to the lender about consolidating your debt, to perhaps end up saving more on payments down the line.
Pay a Little Extra
It might seem straightforward, but to help pay off debt quicker, it’ll help to pay more than the minimum every month on your accounts. If you’re paying off your mortgage, prepayments might incur a penalty, but this is not true for most credit cards. So, if you can fit even $5 or $10 more into your payment amounts, use that to your advantage and see balances paid off faster.
You can apply this to personal loans, student loans, or car loans in addition to credit cards. However, make sure this can fit into your budget before proceeding.
Create a Budgeting Plan
An ironclad budgeting plan will make it easier to manage your debt and potentially pay off balances faster. It can also provide more financial security, especially if you stick to it in the long-term. To create a budget, list your monthly expenses, such as rent, insurance, phone bills, and so on. Then, lump these into wants, needs, and savings, placing more importance into needed expenses.
While it can be difficult to create a budget around wants and needs, it can be a very important step into saving more each month. You can use it to take control of your spending habits, and achieve greater financial security knowing you have extra space to pay bills and treat yourself at the same time.
Build an Emergency Fund
Emergencies happen, and having a safety net to ensure your finances don’t take a hit can help considerably. It’s often recommended to keep at least six month’s worth of your monthly expenses in your emergency fund. This can prove difficult for many people, of course, especially during the COVID-19 pandemic. But if you can take some time to establish a budget, it might actually help keep things in check.
To create an emergency fund, list all your expenses and how they fit into your income, and put a small portion of whatever’s left over into your emergency fund. This can come from your budgeting plan in which you set aside a portion of your income into savings. You can use a high-yield savings account for your emergency fund so the money accrues interest over time. If left untouched, you might end up with more than you thought.
Start Managing Your Debt Today
Learning how to manage your debt isn’t easy. It requires effort and determination, and sometimes, a helping hand. If you’re trying the DIY route, you need the right tools and resources. Credit.com can help. You can find the l content you need to learn to manage your debt, and reach your goals sooner. All you need to do is get started today.
