When it comes to debt, finding out where to start can be one of your biggest hurdles. Your debt recovery time depends on how much debt you’ve incurred, how long that debt has been building, and the type of debt. There are many different types of debt. Some are easier to manage, while others can drown you. The good news is that recovering from debt doesn’t need to be a scary process. All it takes is some dedicated money management and budgeting.
Balancing Repayments With Living Costs
While it’s tempting to repay as much debt as you can monthly, there may be one area that can be forgotten. According to the Office of Efficiency and Renewable Energy, the average household spends $1,945 a year on heating, cooling, appliances, electronics, and lighting. This number can vary depending on home size and area of residence.
These are costs that can not be left out of your budget. When creating a budget for your debt, all potential costs need to be included. This way you can budget out living expenses, including food, along with your debts. This process will let you know if there are any months where you have more funds that can be set aside for savings or that can go towards a higher-than-normal debt payment. Getting out of debt shouldn’t come with the thought process that you can’t spend any money on yourself. Finding some way to treat yourself and saving towards that goal is a good way to reward yourself for knocking down significant amounts of debt.
Don’t Make Minimum Payments
While making minimum payments can seem like an attractive tactic to balance out your living expenses, in the long run, you’re hurting yourself. Making the minimum payment means that by the end of paying off your loan or line of credit, you will have paid significantly more than the initial money that you spent. Interest rates are stacked each month. Depending on your interest rate, these percentages can be excessively high.
If you have multiple sources of debt, create a spreadsheet. This way, you can easily see the full balances, interest rates, and payment dates. This is an easy way for you to look at it and make decisions about how much of your monthly budget will be put toward that particular debt. While you may have to tighten your belts in other areas for a little while, getting rid of high-interest-rate debts is in your best interest.
Pay on Time
This should go without saying, but making your debt payments when they are due is a must. While not all forms of debt come with late payments, many of them do. You also run the risk of being taken to a collection. All of this will damage your credit score and can prevent you from getting a home or a car in the future.
Know Your Options
If you’re struggling with debt, there are ways to help you repay it. For example, if you are left paying large amounts of money for an injury, you can take the other party to court. Typically, these amounts aren’t worth the effort that it takes to go to trial and 95% are settled outside of court. If you’ve wracked up a significant amount of medical bills, many hospitals offer reduced rates and payment plans for those who qualify.
Debt can also be consolidated. When you consolidate your debt, all debts are combined usually at a lower interest rate. This can make it easier to pay down significant amounts of debt with less penalty for yourself.
Overall, you have a few different options when you are facing debt. It’s important to do research to see how you can make savings in your everyday life. For example, a new asphalt shingle roof can give you a 62% ROI. Follow these tips if you’re facing debt.