by Semify
Debt can be a difficult burden to carry, and it can be easy to feel like you’re falling deeper and deeper into financial trouble. However, there are steps you can take to avoid falling deeper in debt and get back on track financially. Here are some tips to help you get started.
Take stock of your debt. The first step to avoiding deeper debt is to understand exactly what you owe and to whom. Make a list of all your debts, including credit card balances, medical bills, personal loans, and any other debts you may have. Include the creditor, the interest rate, and the minimum monthly payment for each debt.
Create a budget. Once you know what you owe, it’s time to create a budget to help you manage your money and pay off your debts. Start by listing all your income, including your salary, any investments or dividends, and any other sources of income. Then, list all your expenses, including rent or mortgage payments, groceries, utilities, and any other bills you have to pay. Subtract your expenses from your income to see how much money you have left over each month.
Prioritize your debts. Not all debts are created equal, and it’s important to prioritize which debts to pay off first. One strategy is to focus on paying off high-interest debts, such as credit card balances, first. This can save you money in the long run by reducing the amount of interest you pay. Alternatively, you may want to tackle smaller debts first to give yourself a sense of accomplishment and momentum.
Consider debt consolidation. If you have multiple debts with different interest rates and minimum payments, it can be difficult to keep track of them all. Debt consolidation allows you to combine all your debts into one loan with a single interest rate and monthly payment. This can make it easier to manage your debts and potentially save you money on interest.
Seek professional help. If you’re struggling to pay off your debts and don’t know where to turn, it may be helpful to seek professional help. A financial advisor or credit counselor can help you create a plan to pay off your debts and get back on track financially. In extreme cases, bankruptcy may be an option. Under Chapter 7 bankruptcy, certain debts like credit card balances, medical bills, personal loans, and overpayments can be discharged, giving you a fresh start as you move forward.
Consider alternative payment options. If you’re struggling to make your minimum monthly payments, it may be worth considering alternative payment options. For example, you may be able to negotiate a lower interest rate with your creditors or extend the length of your loan to reduce your monthly payments. Just be aware that these options may come with additional fees or costs, so be sure to carefully consider the pros and cons before making a decision.
Cut back on expenses. Reducing your expenses can help free up more money to put towards paying off your debts. Look for ways to save money on everyday expenses, such as by cutting back on dining out, canceling subscriptions or memberships you don’t use, or finding ways to save on groceries. This can mean being more mindful of how you use your money. For example, if you need more space and are considering moving, try to utilize your existing home first. Updating a basement costs around 80% less than buying a bigger home. You may also be able to save money by refinancing your mortgage or finding a cheaper car insurance policy.
Increase your income. Another way to free up more money to put towards your debts is to increase your income. This might involve taking on additional work or starting a side hustle, or negotiating a raise or promotion at your current job. You could also consider selling assets you no longer need or use, such as jewelry, electronics, or even a car.
Be prepared for unexpected expenses. No matter how careful you are, unexpected expenses can arise at any time. According to the New York State Department of Transportation, the average cost of an auto accident ranges from $15,000 on the lower end to $63,000 on the higher end, with most accidents falling in the $30,000 to $40,000 range. To help prepare for these types of unexpected expenses, it can be helpful to set aside an emergency fund.
