If you are in debt, no matter what amount, it can feel like there is a lot of weight on your shoulders. Debt can come from mortgages, credit cards, student loans, personal loans, and bills. According to the Federal Reserve, American households hit a debt record of $14.6 trillion in the spring of 2021. Let’s break this down. If all 209,128,0094 Americans over 18 years old had debt, this means each person would have about $69,813.67 of debt to pay off.
Did those statistics hit you as hard as they hit us? It can feel pretty overwhelming! However, let’s stop, take a step back, and breathe for a moment. Debt does not have to run your life or own you! It is possible for anyone, no matter the circumstance, age, gender, etc., to get out of debt. Although there are many ways to manage debt, let’s just focus on four simple steps to get you started.
Manage Debt in 4 Simple Steps
Step 1: Figure Out How Much You Owe
No more just watching bills come in through the mail, or virtually coming out of your bank account, not knowing when it’s ever going to end. Take an hour, evening, or a day to pull all of your information together that you have on debts that you owe. This could include car payments, student loans, house payments, or medical bills. Total everything up! Also, on your list of debt totals, include each creditor, monthly payment amount, interest rate, and due date. Not sure how much you owe? Your credit report can help you confirm your debts.
Step 2: Make a Plan to Repay
Now that you know how much total debt you have, you can start to manage it by finding the best way to pay it all off. There are two popular methods used when trying to dig yourself out of debt: Debt Snowball and Debt Avalanche. Both methods speed up the retirement of your debts by paying more than the minimum that’s due each month. However, you need to commit extra funds to pay down what you owe faithfully and on a regular basis.
The debt snowball method is a strategy used to pay off your smallest debts first before moving onto larger ones. For this method, you list your debts in order of smallest to largest in terms of the total amount but disregard your interest rates. Next, make minimum payments on ALL of your debts except for the smallest one. This debt is the target debt that you put any extra income towards. Be sure not to neglect your basic needs. Once the smallest debt is paid off, you repeat this method and move on to the next smallest debt on your list. Use the payment that you were making on the prior small debt and apply it to the next smallest debt while continuing to make minimum payments on the rest.
The debt avalanche method is similar to the debt snowball method in that you make minimum payments on all your outstanding debt. However, instead of paying them off in order of smallest to largest based on total amount, you pay them off in the order of highest to lowest based on the interest rate. Using this method will save you the most in interest payments.
Step 3: Nail Down Your Budget
You cannot manage debt without creating a budget! There are so many resources available for you to help you stick to it. For example, you could use an app, Microsoft Excel spreadsheet, paper tracker, or the envelope system. At NuMoola, we have created a template you can download and use at your convenience. Check it out!
Step 4: Find an Accountability Partner
You don’t have to do this alone! Ask a friend or family member you can trust to keep you accountable about your goal to manage debt. They can help you say no when needed or be your hype person when you start to feel like you can’t keep pushing forward. Here at NuMoola, we are cheering you on as well.
It’s never too late for the chance to change your family tree by managing your debt and becoming debt-free. These four steps can help set you in that direction. You got this!