Tips For Managing Personal Debt
At some point, most people have to deal with unexpected debt. A necessary repair for the car or home could put your current budget and timely payment strategy into a tailspin. Even a single trip to the emergency room may take your finances off track. The trick to paying off personal debt is to get current on your bills and make a plan that will help protect you in the future.
Create a Realistic Budget
If your income changes, or you get a hefty bill unexpectedly, you may have to rethink your entire budget strategy.
Look at your monthly expenses and divide them into three categories:
- Minimum payments on the bills you must pay, plus necessary expenses like groceries
- Purchases you may need to make within the next six months or a year, but can safely put off for now
- Things you know you can cut without missing them too much
How far you can cut back depends on your debt and where you are with your budget. If you’re not able to make the minimum payments on all of your current debts, you need to find money in your budget to get to that level.
Start Managing Short-Term Debt
Short-term bills often have higher payments. However, once you get rid of them, they’re gone for good. Start with the debts that are causing you trouble. List them by the amount you owe and how much time you have to pay it back without serious consequences.
What you choose to pay first relates to the kind of debt you have. You might have months or a year to pay medical debt before it’s sent to collections, especially if you set up a payment plan. By comparison, missed credit card payments create problems on your credit that get worse every month.
Get Current on Late Payments
Going from default to current on your bills could take time and some extra communication on your part. No one wants to call a creditor and admit that he or she is behind on payments. However, this may be a necessary and even useful step toward getting back into the black.
When you reach out, make sure you understand the full details of the bill in question. Ask for documentation. If you have extra money to devote to the effort, you may be able to negotiate a payment plan that stops the late fees and phone calls.
People who are just barely making it with the minimums might not be able to put more toward back payments. In this case, a short-term loan might make more sense. This could allow you to stop the debt avalanche with a payment you can handle.
Set a Plan for Long-Term Personal Debt Management
Getting behind on bills could happen to anyone with debt. If this is a regular worry of yours, consider a different approach. Even if you can usually pay your credit card bills on time each month, carrying a lot of debt is harder to manage. It stops you from saving as much as you could and may keep you in debt longer than necessary.
With debt consolidation, people use loans to pay off personal debt. It means that you could roll most or all of your current debts into one payment, and it might even be less than you’re paying right now. Sometimes, you can get a lower interest rate that makes it easier to get rid of debt faster.
Digging out from under a mountain of short-term debt takes a solid plan you can follow. If you are tired of worrying about how you will pay your bills each month, apply for a personal loan to help you get back on track.
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