Handling Debt

Facing Debt

If you’re in debt, you’re not alone. Consumer debt in America is extraordinarily high. Sometimes it’s hard to know – or admit – if you have a problem with debt. It can be overwhelming to realize that you’ve gotten in over your head, and to worry that you won’t be able to pay back what you owe. The key to getting out of your situation is to act now. Don’t procrastinate. Taking charge of your finances and creating a plan for tackling your debt will cut down your anxiety and get you on the path toward a better financial future.

First, ask yourself whether debt has become a problem for you. Here are some circumstances that might indicate it has:

  • Next month’s bills arrive before last month’s have been paid
  • Your bills often include late fees
  • You avoid opening bills when they arrive in the mail
  • You procrastinate balancing checkbooks
  • You bounce checks

Write it Out

Do you actually know how much debt you have? Many people don’t. Start by making a list of everything you owe, whether it’s a mortgage, a credit card balance, student loans or even money you borrowed from family or friends. Write down:

  • The lender’s name
  • The amount you owe
  • The term of the loan
  • The interest rate and fees

Then total them up. Looking at the numbers can be worrisome, but this is a positive – and necessary – first step to tackling your debt.

The Power of 50

Paying the minimum amount due on your credit cards is one of the fastest ways to fall further into debt, and it can keep you in debt for years or decades.

If you have a credit card with a $3,000 balance at an annual interest rate of 18%, and you pay only the 2% minimum monthly payment of $60 per month, it would take you 8 years to pay off your bill. Not only that, you will have paid $5,780 by the end of the 8 years – almost double the $3,000 you thought you were spending when you made the charges.

Paying just $50 above the minimum amount due each month will make an incredible difference in how quickly you can pay down what you owe. If you pay an additional $50 per month toward your $3,000 balance for a total payment of $110 a month, you could pay off the debt in 3 years instead of 8, and save yourself over $1,800 in interest. Imagine what you could do with $100 more per month.

Be Realistic

Now that you have analyzed your debt situation, it’s time to look at your monthly budget and set realistic goals. That trip you had planned for next summer, or the new car you were hoping to buy may not be in the cards right now given your new outlook on reducing your debt.

Don’t get discouraged

Reducing debt is like losing weight. You’re not going to lose 50 pounds in a month – you need realistic goals in reasonable timeframes, and debt works the same way. For most people, it takes years to become debt-free. This doesn’t mean you have to stop enjoying your life. It’s just a reminder to live within your means and be diligent about adjusting any spending habits that have contributed to the situation you are in today. Dedicating yourself to paying off what you owe and becoming debt-free will be worth the wait, with the payoff being a brighter financial future.

3 Easy Steps to Lower Monthly Payments

Unless you’re one of the two percent of Americans who actually know their credit score (let alone what a credit score really is) you might be paying too much for loans and credit cards. The three steps below will help you get a handle on debt and identify opportunities to lower rates, which in turn may lower your payments.

  1. First, get a free credit report and fix any outstanding issues. Research shows that up to 25% of credit reports may contain errors that result in denial of access to credit. Review your report and take action to correct any mistakes. An incorrect credit report can decrease your credit score, which in turn increases the rates you pay on loans.
  2. Second, check your current interest rates on all credit cards (including retail store cards). There should be a customer service number on the back of all credit cards plus the information is on your statements. Then contact your credit union or other financial institution and ask if you can roll over credit card balances at lower rates to reduce monthly payments or pay off debt faster. You might be surprised at some of the high rates you’re paying today. Plus, consolidating credit card balances makes managing payments easier.
  3. Finally, do the same rate research on all loans with over six months left to pay off. Find out the rates you’re paying and look for options to refinance at lower rates at your credit union or other financial institution.

If you think trying to roll over balances on credit cards and refinance loans is too big a hassle or too confusing, you just may be surprised. Online and phone loan applications with streamlined procedures have simplified the application process and you often get a response within hours.

Being smart about managing debt can save you money each month and get you out of debt faster. Our representatives are waiting to help you walk through your options. Contact Us today!