by Christy Bieber | March 22, 2020
Does your debt have you concerned? Here's how you can manage it more effectively.
It's no fun to owe money and have a chunk of every paycheck tied up in debt repayment. In fact, for many people, it's a major source of stress. As a recent survey from Capital One revealed, around 45% of Americans are worried about their debt load. And many report that these worries make it harder for them to manage money.
If you're one of the millions of Americans concerned about your debt, you can alleviate some of your fears and improve your overall financial situation by making a plan. These four steps can form the basis of your plan and help you deal proactively with your debt.
Some debts are more worrying than others. Consumer debts that typically have very high interest rates, like payday loans and credit cards, should be of particular concern. The high interest rate will not only mean the debt is harder to repay, but also make the total cost of repayment much higher.
Other debt, however, isn't necessarily a major cause for concern as long as you can afford your payments. Mortgage debt and student loan debt, for example, typically have low interest rates and interest costs could be deductible depending on your tax situation.
These debts are designed to be repaid over a long timeline and getting aggressive about paying them off early usually doesn't make sense because you could often earn a better return on your money by investing.
If you're stressing about your debt, sit down and figure out which debts it makes sense to try to pay off ASAP. Then determine how much you owe on them.
If you have a lot of high-interest debt, you aren't necessarily stuck with it until it's paid down. You might be able to refinance it to reduce the rate you're paying. You could potentially do this by using a balance transfer credit card and transferring your existing credit card debt to it. This could reduce your rate down to 0% for a limited time.
You could also look into qualifying for a low-interest personal loan and using the proceeds to pay off more expensive debts.
If you reduce the rate you're being charged, it won't cost you as much to get out of debt and you hopefully won't be so worried about how to manage repayment of what you owe.
Having a plan for paying off your debt can help you both alleviate your financial stress and become debt free faster. When you've got a plan, you'll know exactly what you should be doing and can monitor your progress to make sure you're on track.
For many people, the debt snowball plan makes sense. This means repaying your lowest debt balance first by making extra payments on it, then rolling all the payments you were making into a bigger payment on the debt with the next lowest balance. You can keep doing that until all the debt you want to repay has been paid off.
If you have high-interest debt with a high balance, you'll pay a lot more in the long run using the snowball method. You could opt for the debt avalanche method instead, which would mean repaying debt with the highest interest rate first and then rolling the payment into the debt with the second-highest rate, and so on until all debts are paid down.
Whatever approach you pick, make sure you stick to it and prioritize extra debt payments in your budget so you can see progress.
Once you've worked hard to get out of debt, you don't want to get back into it and become stressed about your finances again. To avoid this, work on building up an emergency fund with several months of living expenses. If you can rely on this fund when surprise costs crop up, you shouldn't be forced into borrowing in the future.
If you're among the 45% of Americans worried about your debt, you know the toll this can take. You deserve to live your life without this burden, so follow these steps to reduce your stress and get on the path towards becoming debt free. Once you've got your plan in place and are working towards your goal, you should feel a whole lot better about your situation.
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