If you are not careful, debt has a way of piling up. Your debt can be from your credit cards, some medical bills, or just some small personal loans. How you go into debt doesn’t matter, what matters is how you are going to get out of it. When you have a large amount of debt, it can seem overwhelming. You make payments on it each month, but because of interest charges, it feels like you are barely making a dent in it. In order to combat your growing debt, there are a few steps that you can take to try and make things easier.
1. Organize – Before you can start tackling your debt, you need to get everything in order. On a single sheet of paper you should have written down all of your different debts, along with their interest rates, their due dates, and what the minimum payment is. The goal is to have all of the information you can about your debts in one place, so that you can begin to formulate a plan that is beneficial to all of them. Once you have everything compiled, you need to organize it in a way that will be helpful. Try listing all of your debts from the ones with the highest interest rates down to the lowest. These are the debts that are going to cost you the most money in the long run, so you want them near the top of your list.
2. Budget – The next step is that you are going to need to see how much money you have to spend each month on your debts. In order to do this you will need a monthly budget written out that you can examine. If you don’t already have one, making one is fairly simple. You just want to write down every single expense you expect to have in a month, and all of your incomes. Try and list the expenses from the most important down to the least. Things like your electric bill are important, while going out to dinner is not. At the end of the budget you should have a total for your incomes and expenses. You always want your income to be higher than your expenses, so if they are not, you are going to have to start cutting back. During this phase don’t include your debt payments, as you are going to look at them in the next one.
3. Allocate – Now that you know how much money you have left over each month, you can begin applying it to your debts. Focus on the debts at the top of your list, but make sure you have enough to cover the minimum payments for all of them. If you don’t have enough, go back to your budget and start looking for ways to cut back. You want to cover all of your minimum payments, then apply anything leftover towards the debts with the highest interest rates. Following this method will take a while, but it will save you money in the long run
4. Other Options – If you are still having trouble meeting your payments, you may need to look for other options. Consider getting a consolidation loan that has a lower interest rate, and using it to pay off some of your other loans. You can do the same thing with credit cards, transferring your debt from one card to another that has a lower rate. You may also want to speak directly to the lender and see what options they have available for people who are struggling to make payments. There are plenty of options out there for people in debt, you just have to be willing to look for them and apply them.