Between housing and car payments, student loans, credit card spending, medical expenses or a lack of financial literacy, getting into debt is easy, common, and likely keeping you from getting rich. Getting out of debt may seem tricky, but the key step to remember is coming clean about what you owe. Here are the important steps to facing and getting out of debt in a manageable way.
Why You Must Face Your Debt
Debt will not disappear unless you take action to resolve it. Denial almost always leads to further debt, a lower credit score and prolonged financial struggles. (You can see how your debt is affecting your credit scores for free on Credit.com.)
It’s hard to know the right steps to take to get out of debt if you don’t understand exactly how you got there. It can be scary to total up that number, especially if you’ve been avoiding it for years. But a vague idea of what caused your high credit card debt isn’t as helpful as a full breakdown. Knowing how, when and why you overspent can help you prepare a better budget and make sure it doesn’t happen again.
Also, looking honestly at the numbers can motivate you set a goal and track your progress until you meet it.
How to Tackle Your Debt
While there are many options to resolve your debt once faced, there are also many common moves keeping Americans in debt. While adding up all your debts may seem intimidating or overwhelming, discovering what you owe and calculating the monthly interest on each debt is the first step to handling debts efficiently.
Next, understand how much you currently devote to debt reduction, set attainable goals to repay your debt and track your timeline each month. Some ways to find extra money for debt resolution are cutting expenses, picking up part-time or freelance work, and turning a hobby into a source of income.
Consider consolidating your debt by taking a home equity loan or a low-rate credit card or refinancing your mortgage. These tips can help lower your monthly cost and make it easier to pay off the sum — just beware of offers with high fees or ballooning interest rates.
The next step is to start paying back your debts with these methods implemented. You may want to pay certain debts first, like those with high-interest debts, which cause the biggest financial strain. Or you may want to start paying off the smallest debt the most aggressively so you can cross one off sooner. This can be very motivating but can also mean you pay more money in interest over time.
If possible, it can be helpful to pay more than just the minimum on each debt. Paying only the minimums increases the time it takes to pay off your debt and the amount of interest you will pay. Even small increases in debt payments can help.
Once you start working toward a goal of resolving your financial struggles, you will feel relieved that you have set yourself on the right path. Focus on these steps one at a time and you will be on your way to repaying debts. If you are feeling too overwhelmed by your debt and it is negatively impacting your health or your life, this may mean it is time to consult an expert.
More on Managing Debt:
- The Credit.com Debt Management Learning Center
- How to Pay Off Credit Card Debt
- 5 Tips for Consolidating Credit Card Debt