Staff Reports
Do you feel like you want to crawl back into bed whenever you think about having to cope with your financial obligations? According to findings from a poll commissioned by NerdWallet and carried out online by The Harris Poll in June 2022, more than one in five people in the United States are likely to delay the process of developing a strategy for paying off their debt.
That's a lot of putting things off, and there's no reason to be surprised about why. Confronting your financial obligations during your free time is not exactly a pleasurable activity. Nevertheless, there are things that you can do that will make getting out of debt appear to be more within your reach. There are also ways to reduce the amount of interest you pay, which will save you money as you work toward paying off the balance on your credit card.
When we think of debt, we think, 'Oh my god, I really messed up.' According to Kate Mielitz, an accredited financial counselor headquartered in Olympia, Washington who also holds a doctorate in personal financial planning, "That is complete and utter hogwash in all caps. In the United States of America, people fight to pay back debt, struggle to save money, and struggle to act in ways that they are aware are the correct things to do. Simply stating, OK, that was yesterday can do the trick. What can I do today to move forward even a little bit?
1. FIRST, FORGIVE YOURSELF, AND THEN START MAKING A PLAN.
The first and most challenging stage is to gain a knowledge of how you arrived at this point. In the course of her work as a certified financial planner and the creator of FirstGen Wealth in Chicago, Valerie Rivera assists clients in going through their credit card bills in order to classify their transactions and search for recurring spending patterns. Because of this, it is now much simpler to draft a revised expenditure plan that includes provisions for the payment of existing debt.
This portion is critical for the following reasons: It removes you from the "autopilot" mode. It's possible that you've been paying the bare minimum on your bills because you thought that was the most you could bear at the time. You might be able to prevent late fees and damage to your credit score if you take that strategy; nevertheless, doing so will keep you mired in debt for a far longer period of time. If you can make even a small adjustment to the way you spend your money, you might be able to afford to make larger payments.
If you have $10,000 in credit card debt with an interest rate of 17% and you pay $150 toward your balance each month, it will take you 17 years to pay off the debt (and it will cost you an additional $20,820 in interest) and you will be debt-free. That is provided that you do not add any new charges to your balance throughout that period of time. On the other hand, if you were able to increase your monthly payment to $300, you would pay a total of $3,629 in interest and pay off your debt in around four years.
If you have debt, you're normal. Rivera asserts that it is possible to find a way out of it and to confront it head-on. The most important thing is to confront it while still extending grace to yourself during the process.
2. TAKE LARGER FINANCIAL STEPS
It's a good first step to make more room in your budget for paying off debt, but you might need to make some further adjustments before you see significant progress.
If the interest rate you are paying on your credit card is higher than the return you would get on investments, Rivera may suggest that you temporarily reduce the amount you contribute to your retirement account. She also considers if her clients are able to make more significant adjustments to their lifestyles, such as taking on a second job to increase their overall income or finding a roommate to reduce their monthly housing costs.
When making significant shifts in one's financial situation, it may be beneficial to work with a financial specialist. If you are concerned about the expense of receiving financial counseling, the Association for Financial Counseling & Planning Education is now running a promotion during which they are providing free virtual one-on-one sessions with certified financial counselors.
3. DECREASE THE INTEREST RATE YOU ARE PAYING.
You can save even more money by lowering your interest rate in addition to doing the activities listed above. Here are some different approaches that could be considered.
CALL YOUR CREDIT CARD COMPANY AND INQUIRE ABOUT A Reduced INTEREST RATE Call the credit card company and inquire about the possibility of receiving a lower interest rate. It wouldn't hurt to inquire, even though they might decline the offer.
CONSIDER APPLYING FOR BALANCE TRANSFER CREDIT CARDS These offers typically impose a one-time fee and call for a credit score that is adequate (FICO scores of at least 690). However, they allow you to transfer debt onto a card that does not charge interest for anywhere from a few months to over two years, depending on the card. You'll get a break on the interest, but that shouldn't give you license to ignore your financial obligations. You should make it your goal to pay off your debt before the interest rate on it increases, and you should only make purchases with debit cards or cash to avoid adding to it.
CONSIDER THE OPTION OF LOAN CONSOLIDATION If you are eligible for a personal loan, you may be able to convert your several high-interest obligations into a single, more manageable monthly payment at a lower interest rate for a predetermined amount of time.
LOAN MONEY FROM HOME EQUITY A home equity loan or line of credit can offer you with finance at a cheaper interest rate, which you can use to pay off the debt that you owe on your credit cards. Be wary, however, because if you continue to be unable to pay your bills you run the risk of losing your home.
The preceding is a summary of an article that originally appeared on Headline Wealth.
