American’s are managing a lot of debt. According to the Federal Reserve’s Quarterly Report on Household Debt and Credit (November 2020) National debt in the US increased by $87 billion (0.6 percent) in the third quarter of 2020. Some of the increased debt can be attributed to more people taking advantage of low-interest rates and taking on new mortgages. Non-housing balances, such as auto loans and credit card debt increased by $15 billion.
If you have personal debt that is increasing and you want help to manage it, here are 5 practical steps to help you take control.
1. Face up to the problem – don’t bury it away
If your personal debt is piling up rather than reducing, it can quickly become a problem that seems far too big to face and unfortunately that’s why many people don’t. The first step to effective debt management is admitting there is a problem so you can get help and start to take steps to overcome it. Debt can be reduced with effective planning, budget management and, importantly, by being proactive. There are many organizations, such as Debt.org that offer advice and support if you want help taking that first step.
2. Talk to your creditors – they can help
The next thing to do is talk to your creditors. If you find it difficult to speak about your debt over the phone, then contact them via email or web chat. It is in the creditors’ interest to do everything they can to help you pay the debt off and they want you to have a positive experience. By outlining how much you can realistically pay back each month, you can agree on a payment plan. It’s important to always let your creditors know if your circumstances change, so you can review your payment plan together.
3. Start a budget – and stick to it!
Debt management and budget management go hand-in-hand. Budgeting sounds simple, but according to Schwab’s 2019 Modern Wealth Index Survey only 28 percent of Americans have a financial plan in writing. The act of writing out your monthly income and outgoings (whether on paper or spreadsheet on your computer) is the best way of ensuring you can afford your bills and have a contingency to cover unexpected costs. It will also show you where you are wasting money. As well as including the costs for bills and groceries, it’s also important to budget for extras such as family birthday presents, so you have everything covered. Once you have your budget in writing, make sure you stick to it by reviewing and updating it regularly.
4. Use credit to bridge the gap – not dig a deep hole
When used effectively credit can help bridge the gap, if you have an unexpected expense such as an auto repair arise before payday for example and your savings won’t quite cover it. However, it’s important to do your research and find the cheapest credit you can. Using an arranged overdraft is better than using a credit card with a high-interest rate. Importantly you need to be able to pay the amount off the next month, otherwise, it will continue to roll over and the debt will continue to increase. If you start to use credit to pay for essentials such as gas or your grocery shop, then you know you are in trouble and need to act before the debt starts to spiral out of control.
5. Speak to a credit counselor
If your debt is getting increasingly hard to manage a credit counselor can discuss your entire financial situation and help you develop a personalized debt management plan. This brings all your debt under one payment plan where you pay a single monthly payment to the credit counselor who then pays your creditors. Credit counseling agencies are often non-profit organizations and they can offer advice on everything from how to start a budget to find an educational program on money management. It’s important to check that the credit counseling service is accredited by either the National Foundation for Credit Counseling (NFCC) or Financial Counseling Association of America (FCAA).
The only formula to staying out of debt is spending less and earning more. However, by being more proactive and aware of your spending you can relieve some of the pressure and manage your money more effectively.
While you’re here, do read our blog ‘What is debt management and how it can help you’.
Firstsource Advantage, LLC is a third-party debt collection agency that services accounts on behalf of the creditor. Please check our Consumer FAQ’s https://www.firstsourceadvantage.com/consumer-faq/
If you are currently experiencing hardship or an impact due to COVID-19, you may contact a free consumer debt counseling company such as Consumer Credit Counseling Services (http://credit.org/cccs/) and Money Management International (http://www.cccsintl.org/) who may be able to assist you with your current situation.