Debt has become as American as apple pie and baseball. According to a 2017 study, the average US household has over $133,000 of debt, including nearly $16,000 of credit card debt.
Don’t use those statistics to judge your situation, though. What matters for you is whether you can pay your debts. Between mortgages, loans, credit cards, medical bills, and other debts, it’s easy for the numbers to climb out of control.
If you’re struggling and need some advice about how to manage debt, look no further.
How to Manage Debt: Your Options
If you’re up to your eyeballs in debt, it can be tough to know where to start. Here are your basic options:
Re-Working Your Budget
You may have already done this, but it’s worth taking a closer look. Do a thorough analysis of your finances. Add up what you’re paying for the bare necessities (like your home and utilities). Subtract that from your total post-tax income. Do your debt payments fit into the amount left over?
What could you cut out or what grocery budget could you maintain to make your payments? If you have a car, is it really necessary? Could you get to work with public transit instead?
This is also a good time to consider adding to your income. “Side hustles” have become common practice today. Look for a part-time job or a way to freelance on the side for extra cash. Making use of your special skills will earn the highest pay, but there are plenty of entry jobs available too.
If your minimum payments are so high that you can’t increase your income or decrease your expenses enough to cover them, it’s time to consider the options below.
Debt consolidation is exactly what it sounds like: exchanging your many monthly payments for a single payment that’s lower than your current total.
There are companies that will help you consolidate your debts. Usually, this is done by getting a new loan and using those funds to pay off all your other debts.
It’s important to be careful with debt consolidation, though. Your monthly payment may be lower, but if your payments last for 10 years instead of the 5-year payoff you were previously paying toward, it may cost you more money in the long run.
Some people, however, are willing to pay more overall to avoid a debt management option that damages their credit further.
Debt settlement is the practice of negotiating with your creditors for a lower payment. If you contact each creditor and explain why you fell behind and ask for help, they may be willing to lower your interest rate or work out an easier payment plan with you.
If you choose to settle your debts, make sure you know how much you can afford to pay monthly. They may ask you want you can manage, and you want to have that magic number ready. You don’t want to work out a settlement only to find that you still can’t pay the lowered amount.
A key disadvantage to debt settlement is that it’s a stressful process. You may put in hours of back-and-forth with each creditor. Many people with overwhelming debt have five or ten different creditors, so this can be a painstaking process. With all this effort, there’s no guarantee your creditors will help you either.
The dreaded “B” word of finances, bankruptcy is another option for dealing with unmanageable debt.
If you declare bankruptcy, it essentially makes many of your debts uncollectible. You get to start over with a cleaner slate.
Notice that we said “cleaner” and not “clean,” however. Bankruptcy only extinguishes some debts, not all. Some common types of debt bankruptcy won’t cover include:
- Many types of student loans
- Child support
- Mortgage debt
- Very recent credit card debt
- Many debts from legal problems, like fraud or embezzlement
Another problem with bankruptcy is that it may hurt others you don’t intend to hurt. If you had a co-signer or guarantor for your debts, those debts are transferred to the co-signer.
Of course, there’s also another massive problem with declaring bankruptcy, its impact on your credit score. Understandably, bankruptcy will tank your credit score. Depending on the type of bankruptcy you file, it will stay on your credit report for up to ten years.
Accredited Debt Relief Program
None of the options above are pain-free solutions. Some of them even leave you vulnerable to scams or may cost you more money in the long run.
Your other choice is to contact an accredited debt relief organization. These organizations provide you with a debt counselor. The experienced counselor will evaluate your debt and your unique finances and create the best plan for your specific needs.
Depending on the best way to manage your debt, a debt relief organization can also be a go-between to negotiate with your creditors on your behalf.
As an added bonus, some debt relief programs will also counsel you about personal finances and budgeting. If you haven’t figured out why you got into debt in the first place, this can help you keep from getting into the same situation again.
Just be careful to specifically choose an accredited organization. There are for-profit companies who will try to take advantage of your situation.
The Best Ways to Deal with Your Debt
There’s no magic wand that will wipe away your debt without consequences. There are plenty of options available no matter what your situation may be. However, there isn’t a solitary solution that works for everyone. That’s why the goal of a debt relief organization is to give each debtor a personalized, manageable plan.
To learn more about managing debt, check out more items on our blog. If you’re ready to take control of your debt and your finances, contact our debt relief organization today.