When you have a large amount of debt, it can seem overwhelming to pay it all off. However, it is possible to tackle debt one payment at a time, and many people have continued to pay off their debt even while unemployed or underemployed. Here are some of the ways to get your debt under control.
Prioritize Debt Payments
If you’re in a place where you’re living month-to-month, you may not always have the money to pay each bill. However, it’s important to prioritize your debt payments. If you default on the debt, your debt load will go up even further and affect your credit, so it’s important to make consistent payments even when you don’t have enough cash flow coming in.
One way to do this is to pay your debt payment as the first bill each month. Even if you have bills that are due earlier in the month, you can pay what’s most important and then see if you have the money left over to cover all the bills. Aside from your debt payment, prioritize paying back any bills that will incur a lot of interest if they’re not paid. Whenever you enter a situation where you can’t pay all of the bills, consider which ones will affect your credit if not paid; try to negotiate with companies to make a different payment plan if necessary.
Pay Back High Interest Loans First
If you have multiple sources of debt, it’s important to pay back the highest interest debts first. This is because these are the ones that are accumulating the most interest and leading to your high debt load. Whenever you can afford to make more than the minimum payment on your debts, apply the money to the highest interest loan until it is paid off in full. Then, begin to make high payments on the next highest interest loan.
Use Credit Cards Wisely
In some cases, you can actually use your credit cards to help you pay off your high interest loans. For instance, if you have a low-interest credit card that hasn’t reached its maximum yet, consider making a large payment towards your high-interest loan. Essentially, you’re transferring your high-interest loan to the low-interest loan, giving you a lower interest rate while you attempt to pay everything off.
Consider Consolidating Debt
The advice to consolidate debt is sometimes controversial. In some cases, it can certainly help you manage debt from a lot of different sources. Before you agree to consolidate your debt, be sure to calculate how much interest you’re paying in total for all of your debts, and compare it to the new, single interest rate. In some cases, when you have several sources of high- and low-interest debts, a debt consolidator can help you get a better rate overall.
Delay Big Ticket Items
Unfortunately, if you are thinking of making a big ticket purchase such as a car or buying a home, you may need to wait until you are clear of your high debt load before you begin. Lenders will look at the amount of debt you’re currently in when deciding what kind of interest rate to give you. When you have a high debt to income ratio, they will give you very high interest rates for any new purchases that you make. Consider postponing any major purchases until you can pay down your debts a little; you’ll be able to get better rates on these items and avoid putting yourself into an even bigger debt problem.
Dip into Your Savings
When you have a lot of debt, your savings account may be your best option in paying back loans. If you choose to use your savings to tackle a large loan, then you will be able to start rebuilding more quickly without debt looming over your head.
Ask Family and Friends
If you have a lot of close friends and family, you may consider getting some money from them in order to help you cover your loans. While you may still have to pay them back, they probably won’t charge you interest; at least this way, you aren’t accumulating more debt as you try to pay off your current debt load.
Ask for Options
Banks can sometimes be understanding when you have a major loss such as a loss of job or other major financial setback. Depending on what type of institution you have your loan from, there are a few ways to get help in managing your payments.
If it is a student loan or a loan from a government source, then you may be able to get a forbearance claim. In that case, you would submit an unemployment or medical claim to the financial institution and ask to defer payments for 6 months of more.
If your loan comes from a major financial institution, then you could still apply for having the debt refinanced. Banks may be able to offer you lower interest rates if your credit is in good standing. This can be especially helpful if your credit was worse when you took out the loan. Another thing to consider is getting the loan refinanced. Ask your bank if they can reduce the monthly payment if you’re struggling to make ends meet.
Keeping Your Credit in Good Standing
Ideally, if you are able to make minimum payments on all of your loans each month, your credit should remain in good standing. Even when you have a long road to repaying debt, a good line of credit can be really helpful should you need to take out more loans to cover short term costs, whereas bad credit can cut you off from other sources of income to pay back your loans.
The benefits of straightening out your debt load and managing your credit are the keys to financial freedom, and so it’s important to keep working towards paying back your debts even when it seems difficult. Creating a budget can help you plan your debt payments around all of your other responsibilities. If you need more help in deciding how much to pay and to whom, seek out a professional financial counselor.
The process of managing a lot of debt can seem daunting at first, but with these tips you can begin to chip away at the debt, little by little. The most important things are to be consistent in your payments and to seek out expert financial advice when you’re not sure how to proceed. With a little perseverance, you can one day be debt free again.