5 Effective Ways to Manage Debt

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Americans owe nearly $12 trillion dollars in debt while over $8 trillion dollars of that is held in mortgages, a staggering $1.19 trillion dollars is in student loans and credit card debt makes up nearly $900 billion dollars of this figure. If you are one of the tens of millions of Americans struggling with debt overload, you can start effectively managing your financial situation.

Large balances of debt, particularly when you can’t pay the debt, weighs heavily on your emotion health and physical health. It is important to start managing your income and expenses to move forward. Financial success and security require getting debts under control, budgeting expenses and saving for the future. Here are 6 ways you can take control of your financial future by managing your debt.

  1. Review your Credit Report. Part of managing debt is making sure that you are paying the lowest interest rates possible. The higher your credit score, the lower the interest you pay on your debts – this includes for mortgages, vehicles, lines of credit and credit cards. People are often surprised with the number of errors on their credit report. It is vital that you check your credit at least annually and contest any discrepancies that may appear.
  2. Snapshot your Debts. Now that you have your current credit report, make a list of all creditors, debts, and the amount of the debt, the interest rate, the minimum monthly payment and the due date. If you have any charge-offs, liens or judgments make note of these as well.
  3. Pay Bills on Time. Create a payment calendar that allows you to pay your bills twice per month; divide up the debts equally between these two periods to avoid being cash poor during one time of the month. Creditors will often change due dates when requested. So for example, if your mortgage or rent is due on the 1st of the month, shift the due date of your remaining debts to the 15th of the month or a date after your second paycheck of the month.
  4. Prioritize Debts. When you have the ability – pay more than the required minimum payment due. Even an extra $10 a month can save you hundreds of dollars in interest payments. When you can pay more towards your debt, start by paying down the debts that carry the highest interest rate.
  5. Budget. Take a look at your income and general expenses excluding debt payments. This includes groceries, utilities, gas, medical expenses, entertainment expenses, etc. Now, add in your debt payments. Subtract this number from your take-home income. If you have a greater liability for debts and expenses than you have income coming in, it is time to reevaluate expenses. Look for an area you can cut back on expenses – whether that means downsizing your home or vehicle or restraining other expenses. If you don’t already dedicate a portion of your income to savings and retirement, it is time to start. Treat money for savings and investment as a debt – a debt to yourself. Make sure you pay yourself each and every month.

From time to time, we all experience financial struggles. Whether due to illness, loss of a job, the death of a spouse or a host of other reasons, it is important to communicate quickly with your creditors. Often, creditors will be willing to work with you by temporarily lowering payments or even suspending payments in certain cases. For longer term financial challenges, bankruptcy may be an option. Be sure to check with legal counsel and your personal accountant for the best options for your situation.

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