“First, don’t panic.” says Leslie Tayne, a debt settlement attorney based in New York. “Debt goes up and down in your life, and sometimes you take it on when you don’t want to.”
This is one of those times where many people are being forced into debt due to unprecedented circumstances around the coronavirus pandemic. In fact, nearly a third of Americans are dealing with a lower income due to coronavirus.
The first step to getting out of debt is to focus on your goals, says Tayne. Once you’ve set your goals, there’s a few other things you’re going to want to take a look at.
Here are six tips for bouncing back from debt.
1. Evaluate your budget
The first step to tackling debt is taking a look at where your money is currently going. Take the time to go over your current budget and compare it to your financial goals – do they align?
“Be realistic and honest with yourself about what you spend each month.” says Tayne. “When you’re trying to bounce back from debt, you have to have a good understanding of where your money goes and make decisions about where the money needs to go each month.”
If your goal is to pay off debt but a good portion of your income is going towards shopping and other non-essential things, then it’s time to reevaluate and cut back to bare-bone spending, says Tayne.
If you don’t currently have a budget set up, now is the time to do it as this can help you avoid building up any more debt. There are plenty of budgeting methods out there, but an easy one to understand is the 50-30-20 budget. This method splits your income into must-haves, wants and savings. Another option is to utilize budgeting apps, which do all the heavy lifting for you.
2. Take stock of your debts
In order to decide where you should start focusing your efforts, you need to have an understanding of how much you owe and how much interest it’s costing you. After you’ve figured that out, you can more easily decide which debt repayment strategy is best for you.
“Pay at least the minimums on your cards and other bills each month, and set up autopay if you have a history of paying late,” says Tayne. “Then, pay as much as you can afford each month [what’s left over in your budget] towards the account that you chose and make sure you’re consistently making this extra payment each month.”
There are three types of debt repayment strategies to consider:
- The debt snowball: An approach where you gradually pay your debts from the smallest amount to the largest. This method is encouraging because you can see the progress you’re making earlier on.
- The debt avalanche: This method is similar to snowballing, but instead orders debt by interest rate. You’ll prioritize paying off debt with the highest annual percentage rate (APR) before moving onto the next, and so on.
- Debt consolidation: If you have various debts to repay and are finding it difficult to keep track of, you may want to consider debt consolidation. This method rolls all of your debt into one loan with a single interest rate.
Debt consolidation alone won’t eliminate your debt, but it could seriously reduce the amount of interest you pay over time. This is an appealing option for those who have a handful of debts as it makes it easier to keep track of it all.
Here are a few popular debt consolidation options:
- Zero percent APR intro balance transfer: Good for those who have accumulated credit card debt; however, note that the zero percent rate is only for a limited amount of time and there are often fees ranging from 3-5 percent associated with the transfer.
- Refinancing: Good for those with student loans spread out across various lenders.
- Personal loan: Good for those with high amounts of medical debt.
3. Reach out to creditors and lenders
Creditors and lenders can sometimes help you out – all you have to do is ask.
“If you haven’t missed payments and you’ve been a good customer, you may be able to ask for lowered interest rates and opportunities for different products that help reduce your expenses.” says Tayne.
This isn’t guaranteed by any means, but it never hurts to try. If you are able to get a lower interest rate, it could help you eliminate your debt much sooner, which could be a huge weight off of your shoulders.
Tayne also suggests checking to see if your bank offers payment deferrals, which isn’t uncommon in the coronavirus era. In fact, the list of banks offering relief due to the pandemic is pretty long. This option could help you avoid putting bills on high-interest rate credit cards.
“Remember, part of bouncing back may mean [taking] a hit to your credit and sometimes that’s OK,” says Tayne.
4. Don’t miss out on discounts
If you have pricey bills that are pushing you over your budget, then you should look to see if there’s any way you can negotiate them down.
In fact, there are digital services available designed to help you do just that.
Trim, for example, combs through your bank data and searches for areas where you could be saving by cutting an expense or negotiating a better deal. This is a great option for those who have pricey phone and cable bills and need help lowering them.
“If your cell phone company won’t budge, consider going prepaid or look for a ‘switch’ deal. Competing companies will often offer deals such as a prepaid debit card to pay off the remaining balances on your phones when you switch,” says Tayne.
The same goes for insurance. It almost always pays to shop around and get quotes from other companies. Even if you have no intention of leaving your current company, they may offer a rate match, says Tayne.
5. Organize your finances digitally
Keeping track of your finances can be a difficult task, but it doesn’t have to be – especially when you digitize them.
Personal finance services like Mint will organize your finances in one convenient location. The app allows you to create a budget, set goals and will alert you when a bill is due, among other important things.
It’s also a cool way to see your progress as you work towards crushing your debt.
6. Look into side hustles
If you are suffering from a lower income due to coronavirus, getting a side hustle could be a great way to boost your income.
According to a Bankate survey, the average monthly income for side hustlers in 2019 was $1,122. This extra cash could help cover important expenses or even go toward paying down debts.
Some popular side gigs to look into include:
- Dog walking (Rover)
- Becoming a delivery driver (UberEats, GrubHub or Seamless)
- Selling your artwork or skills online (Etsy, Skillshare, Shutterstock, etc.)
- Selling belongings you no longer need (Facebook Marketplace, Craigslist, LetGo, etc.)
There are also apps to help you find a side gig, like Steady, that you may want to check out.
It may take longer than you’d like, but it is possible to bounce back from steep levels of debt – you just have to be realistic about the timeline and focus on your goal.
“You may not be able to solve it over a month,” says Anu Shultes, CEO at LendUp. “It’s about creating new habits. You need to tell yourself it’s going to take time and keep working at it.”
Source: MSN Money