Whether your debt is from credit cards, an auto loan, student loans, or a mortgage, you’re not alone. Debt is rampant these days as consumers have more options, buying routes and obligations than they can responsibly handle.
Overall student loan debt reached 1.3 trillion dollars at the end of 2016, made up of 44.2 million borrowers. Of course, the $905 billion in collective credit card debt is even more debilitating given that the average household pays over $900 annually in interest rates.
Overall mortgages, as expected, lead all types of debt, but the average American household with any kind of debt is carrying an average of $131,431.
If you’re one of these households and your “uh-oh” moment came a little late, don’t fret. Take a deep breath and consider these five important steps to get your debt under control.
1. Determine the Exact Number You’re in Debt
It’s understandable to want to avoid knowing exactly how much debt you have. However, you’ll never be able to get out of debt if you don’t understand how much you owe. Take your expected monthly income and subtract it by your monthly expenses, such as rent, groceries, utility bills, etc. Then accumulate your actual debt, such as credit card balances, student loan debt, auto loans, mortgages, medical bills, anything that you currently owe.
Even if it hurts, enter these numbers into a calculator to find out exactly how much you’re in the hole. Multiplying your debt by the monthly interest rates, then noting how much leftover monthly income you have will give you an idea of whether your debt will continue to spiral out of control, or if it can be reeled in with some discipline and sacrifices.
2. Talk to the Experts
Once you have a better idea of the situation you’re in, you’ll know if you can get out of it alone, or if you need outside help. When debt becomes unmanageable, more steps than budgeting need to be considered. Relief can come from debt settlement companies. For instance, Freedom Debt Relief offers evaluations so you can better understand if you’re a candidate for debt relief assistance. Does Freedom Debt Relief work? Yes, the service aids clients who need help taking control of their financial wellbeing and is a viable option for anyone at their wits end from talking to debt collectors.
3. Avoid Increasing Your Debt
This one sounds obvious but the reason many people never get out of debt is because they continue to purchase things on credit, only increasing their balance and interest fees.
If you’re realized you’re in over your head with a particular form of debt, namely, credit cards, stop using that card immediately and just focus on paying it off as best you can. You should only buy things using debit cards and cash when you’re in debt. Every dollar does add up.
4. Trim the Fat
You may have gotten into debt because you lived too loosely with your money. Mistakes happen, but as a newfound seeker of financial health, now’s the time to start trimming the fat in your lifestyle. This could mean cutting back on fast food, daily mochas, online shopping, that extra karaoke night, your cable package, or simply subscribing to the idea that if you won’t remember the purchase, don’t buy it.
Practicing better spending discipline is a must no matter which route you choose to get out of debt. If you don’t correct the root of your behavior, then you’ll likely end up where you started.
5. Budgeting to Retrain Spending
To break the mold of your free-spending ways, keep a budget. Your budget can be on ole fashioned pen and paper, or a fancy budgeting software with additional features. You can stay more conscious of your purchases by writing them down or scanning your bank statement.
And if you want to get better insight on where your money goes, then there are plenty of personal budgeting software apps to choose from. Most of these will take a little configuring to work best for you and your budget, but once your spending categories, income, and current debt are set, they’ll valuable insights.
Still, you choose to handle your debt, know that taking focused action will put you in a better financial position down the road. Choosing to be overwhelmed and defeated by the financial stress only perpetuates the cycle. Good luck on your new path to financial freedom!