Tips to Manage Debt

If you’re juggling student loans, credit card balances, a mortgage, or any other type of debt, you may be struggling to pay it off. Follow these tips to learn how to manage debt the smart way and get closer to financial freedom.

Evaluate Your Debt

Start by making a list of all your different debts. These may include:

• Student loans
• Credit cards
• Store credit cards
• Mortgage or other home loan
• Car loan

Note the current balance, interest rate, and monthly payments for each. Double-check that the amounts are accurate. Sometimes lenders make mistakes, which could end up costing you if you don’t pay attention.

Total your entire debt load. This amount might be intimidating, but it’s important to know exactly how much you owe, so you can develop an effective plan to deal with it.

Create a Budget

To reach your financial goals, you need to understand how much money comes in and goes out each month. Start by tracking how much you currently earn and spend. Make sure to capture everything you spend money on — from groceries and rent to dinners out and gas. You can use online tools, spreadsheets, or even pen and paper.

If your income is lower than your basic needs, you may need to look for ways to earn more money, either through a higher-paying or second job, if possible.

Revisit your budget as your spending and income change and adjust as needed.

Reduce Your Spending

Once you have an accurate picture of where your money is going, you can make decisions about places where you can reduce your spending. Do you see any recurring charges for services you no longer need? You might be paying an annual fee for a credit card you don’t use. Or perhaps you are paying a monthly subscription charge for a streaming service you don’t watch. Can you carpool with a colleague to reduce the amount you spend on gas?

Look for easy ways to reduce your spending. This can help free up money so you can pay down more debt.

Prioritize Your Payments

Next, identify the debt that costs you the most. Typically, this would be loans with the highest interest rate. Because these will cost you more, you should pay them down as quickly as possible.

Plan to:

• Pay all your bills on time;
• Pay at least the minimum amount due on all your debt; and
• Put any extra money toward paying off your highest-cost debt, whenever possible.

Once you pay off your highest-cost debt, identity the next highest and focus on paying that down.

Renegotiate, If Possible

If you’re having trouble making payments due to a lost job or an emergency, you may be able to negotiate a new payment plan with your lender. For a short-term issue, lenders may accept a one-time lower payment or come to another arrangement with you.

Try not to miss a payment, as this will negatively impact your credit score and make it more difficult to borrow money in the future. It’s always better to communicate with your lender than to ignore bills.

Consider reaching out to lenders to see if they can offer you a lower interest rate even if you haven’t experienced an issue impacting your ability to pay. This can save you money in the long term, and you can use that savings to pay down more debt.

Be Persistent

Don’t give up! It may take a while to pay off your debt, but the financial freedom will be worth it.

If you need help developing a plan to reach your financial goals, please schedule an appointment with us to discuss your needs.

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