The COVID-19 pandemic completely changed the financial landscape for the average American. Millions of people lost their jobs, and a significant number saw a decrease in their annual income. Fast forward to 2022, consumer debt levels are now at an all-time high. Managing your finances has never been more important. Here are five smart ways to get your outstanding debt in control:
Understand your debt – what do you owe and to whom do you owe it
Understanding your finances, particularly your outstanding debt, is the key to taking charge of your money. With over 77% of American households having some form of debt, it is essential to have a solid plan to reduce and manage your liabilities.
Knowing the balances and interest rates of the amount owed and to whom you owe it will help you develop a proper plan to pay it off.
To do so, you can list down all the dues (credit card, personal loan, car loan), the interest rates on each, and the minimum monthly payments. Once complete, this list can help you prioritize your payments. Additionally, you can create a financial calendar to keep track of your monthly expenses and your outstanding debt.
Negotiate with the creditors
Managing your outstanding debt becomes easy with a bit of negotiation. Speak to the creditors and try to get a lower interest rate on the outstanding debt balance. Creditors are often willing to negotiate if they feel that they may not get the entire amount owed.
Another way to negotiate is to ask for a more extended repayment period. It will help reduce the monthly payments, thus making it easier to repay the debt amount. However, do keep in mind that extending the repayment period will increase the overall interest amount to be paid.
Before dealing with the creditors, it is important to have a clear idea of how much to negotiate. A wrong move can further aggravate the situation leading to wage garnishment, legal action, or even bankruptcy.
Consider debt consolidation services
Consolidating several bad debts into a single loan simplifies the number of payments and interest rates. The debt consolidation company will work with your creditors to get a lower interest rate and a more extended repayment period. This will help you make one monthly payment instead of multiple payments, making it easier to manage your outstanding debt.
Debt consolidation services provide a more manageable payment plan and help avoid any legal action from the creditors. Consolidating your debt can have many advantages, including faster and more streamlined payoffs, lowered monthly installments, and a more favorable credit rating.
However, it is necessary to do adequate research on the debt consolidation company before signing up for its services. A lot of them will try to sell you debt settlement plans, which might hurt your credit rating. You can choose one with a good Better Business Bureau (BBB) rating as it is a good indication of the company’s trustworthiness.
Check credit reports at regular intervals
It is necessary to check your credit reports to ensure that the information reported is accurate. While evaluating them, look for mistakes such as accounts that have been closed or paid off being listed as open, incorrect credit limits/balances, or any fraudulent activity.
It is recommended to have a credit file to keep track of your credit card and loan information. Create a spreadsheet containing the account details, creditor’s contact information, current balance, interest rate, and monthly payment. Having such an updated credit file will help identify any future discrepancies.
Additionally, make sure that the credit reports are from the three consumer credit bureaus, viz. Experian, TransUnion, and Equifax. If there are any errors on the report, you need to correct them immediately.
Set up an emergency fund
An emergency fund can help deal with unexpected expenses such as medical bills, house repairs, or monthly installments. It is essential to have at least 3-6 months of living expenses saved up to cover these unexpected costs.
The ideal place to keep your emergency fund would be a high-yield savings account that provides fast access and pays a reasonable rate of return. Ensure that the banks and credit unions where you put your money are Federal Deposit Insurance Corp (FDIC)- or National Credit Union Administration (NCUA)-insured.
Additionally, you can keep your emergency fund in a money market account, certificate of deposit (CD), or bond.
Managing your outstanding debt can be a daunting task, but following these five simple tips can make it a lot easier. By being aware of the different options available and taking appropriate action, anyone can get their debt under control and start on the path to financial stability. In case of unmanageable debt, it is always advisable to seek professional help.
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