The daily temptation placed on consumers in our increasingly cashless world is unprecedented. Swiping a card may make things more convenient, but they’re more prone to fueling spontaneous and wasteful purchases than curbing them.
Per a NerdWallet study, overall U.S. household debt (including mortgages) in 2018 surpassed $135,000. Households with revolving credit card debt — meaning they pay interest on it monthly — carried a balance of nearly $7,000. Whatever the source of your debt, there are things you should and should not do.
Let’s cover some essential ones below.
Increase Your Income, Reduce Expenses
It’s easy to make personal finance complicated with the array of knowledge at our disposal, but achieving economic security is quite straightforward. We need to make more money than we send out each month. When we’re dealing with debt, we need to find additional ways to widen our earning-to-spending margin.
Can you find a part-time job or level up in a skill that can earn you another stream of income soon? What in your budget doesn’t relate to housing, food (assuming you cook), transportation (as logistically makes sense) and clothing (within reason)?
Cutting any excess spending may make you feel deprived, but the sooner you begin the purge, the closer you’ll be to real financial independence.
Ask Friends and Family for Help
Carrying debt — especially outstanding debt that comes with frequent collection calls and late payment notices — is not only stressful, but it’s also embarrassing. We can feel less than human when our financial lives are in turmoil. The negative emotions often bleed into our relationships to some capacity as well. The combination of embarrassment and existing strife leads many people to avoid asking their loved ones for help.
Not everybody has friends and family in a position to do, of course, but any possibility of being lent money exists, it sure beats continuing to dig a hole financially and mentally.
Adhere to a Financial Strategy
Debtors need to simplify things to combat the overwhelming feelings of debt. Committing to a repayment plan or debt-assistance strategy sets a timeline to financial wellness while boosting self-esteem through progress made along the way.
Deciding on the right financial strategy depends entirely on the level of debt one carries, though.
Moderate balances still within a debtor’s grasps are well suited for the debt snowball, avalanche, or hybrid of the two — the snowflake method. In other cases, obtaining a balance transfer with a zero or low-interest introductory period can consolidate balances and simplify the repayment process. For more severe balances, personal bankruptcy and debt relief become viable options. Deciding between chapter 7, chapter 13 bankruptcy, and debt settlement will depend on if you want to go to court, how many assets you possess, and how long of a resolution timetable you seek, among other things.
Don’t Create More Debt to Balance Debt
As noted above, balance transfers and debt consolidation options can be useful in choice circumstances. However, they’re not the solution to the problem themselves. Many debtors charge more debt to stay on pace with existing debts. This might keep some creditors at bay a while longer, but debtors only get further behind as they progressively lose more to interest each month.
But it can get worse. When debtors have maxed out their credit and traditional financing options, payday loans lurk as eager predators. Payday loans provide quick access to cash, but they carry exorbitant interest rates. It’s common for a two-week loan to come with 400 percent APR. It’s this cycle that almost always leads debtors to severe debt-relief measures.
Don’t Fall for Financial Scams
The negative emotions that stem from debt also hinder our ability to see through a scam. When we’re desperate and eager to hear tales of quick solutions and positive outcomes, we’re susceptible to all sorts of deception.
For instance, it’s common for predators to guise as debt relief companies, promising to wipe away debt for a fee. The debtor pays. Nothing happens. It’s been such a problem that even legitimate companies warn of scams on their website, like the FAQs and reviews section on Freedom Debt Relief’s site. In general, you can steer clear of many types of scams by a) treating all unsolicited contact as a red flag, b) never surrendering money up front to any company or service.
Don’t Wallow in Your Misery
Late collections, creditor calls, low self-esteem, relationships in strife, no light at the end of the tunnel — it’s easy to let a difficult financial circumstance cloud our entire life outlook. The harsh reality, though, is that this bleak situation will never look brighter unless we do something about it.
This can mean asking a loved one for financial help, joining a debtors anonymous group, moving back in with family to save on housing. It can also mean lifting your morale by committing to a specific financial plan or seeking professional legal or debt-assistance help.
Whatever you choose, do something. Your future self will thank you.