Debt is an inevitable part of adulthood whether you want to buy a house or own a vehicle. Debt can also accumulate through medical bills, credit card debt, or student loans. Before you know it, your payments are overwhelming, and you might feel like there is no way that you’ll ever be able to get out of debt. However, there are some things you can do to get your debt under control.
Organize Your Finances
To understand your debt, you need to understand the current state of your finances. Make a list of all your current debts. List everything from your mortgage to your credit cards and other accounts you’re making installment payments on. You should also list out your monthly expenses on other things, such as utilities, transportation, food, and entertainment. This allows you to put your debt into a bigger perspective to analyze the best method to reduce it as quickly as possible while still paying for your basic needs.
Once you have organized your finances, create a budget and stick to it. List your important expenses such as housing, utilities, and food and make cuts where you can. Limit spending, eat more meals at home and avoid buying non-necessities until you’ve got a reign on your debt.
Pay on Time
Paying your debts on time, even if it’s just the minimum payment, is critical for keeping your debt in control. Interest charges increase the amount of money you pay over the life of the loan especially with higher interest items like credit cards. Making a late payment can increase the minimum monthly payment, spike your interest rate, lower your credit score, or cause the company to assess a pricey late fee to pay on top of the late payment. Set up auto-pay if you aren’t good at remembering due dates or keep the dates in an organizer or calendar.
If you have a lot of credit card debt it is likely you’ve got high-interest rates. Consider transferring your balances to the card with the lowest interest or shop around for a card that offers a low or no percent transfer rate. A personal loan with a lower rate is another alternative for consolidating your debt. There may be some fees associated with transferring balances, so make sure you do thorough research before you choose this option. If transferring balances doesn’t seem to be a good idea, you can also look into debt consolidation.
While not ideal, bankruptcy can be a resource if your debt is so out of control that you can’t catch up. Filing for bankruptcy is not something to take lightly, as it can have some pretty severe consequences. Depending on the type of debt you have, it may also not be very effective. Chapter 13 is one of the most common types of bankruptcy, but, as Berkowitz and Myer point out, it does not discharge debts such as student loans or payments for a DUI accident.
It can be easy to panic and feel overwhelmed by your debt, but don’t let it get the best of you. You can take control of your finances, and you can get out of debt.