Americans carry more than $2 trillion in consumer debt, according to the Federal Reserve. Credits cards are the cause of $937 billion of that debt. Additionally, more than 2.1 million Americans with home loans missed at least one payment last year, according to the Mortgage Bankers Association.
Money is the leading cause of stress for most Americans. The constant worry of paying bills and avoiding debt can often evolve into actual physical ailments.
As overwhelming as it can seem, there are steps you can take to regain control of your finances and manage your debt.
One of the first things you should do is figure out exactly how much debt you have and what interest rates you are paying. Write down how much you owe on things like your mortgage, car payment, college loans, and credit cards. Next to each item, list the name of the lender, the amount you owe, the term of the loan and the interest rate. Total up the amounts to determine your debt load. The number may overwhelm you, but you’ve just taken the first step to creating a debt management plan so try to stay positive.
For mortgages, check to see if current rates are lower and refinance where possible. For credit cards, contact the company and see if you can work out a lower interest rate or payment plan that is more workable for your budget.
Most importantly, don’t stop making payments on any of the loans. By continuing to make even the minimum payments, you are protecting your credit score. If you have any extra funds, pay more than the minimum on the loan or credit card with the highest interest rate. This will help save you money in the long run.
Creating and maintaining a budget also becomes necessary when getting out of debt. Know how much money you’re making and what you are spending it on. Some expenses are fixed and must be paid each month. Other expenses are flexible and can be cut back on to help pay off loans and credit card balances. For example, go without cable TV for a few months or cut back on the number of times you eat out to save money. Get more tips for budgeting here.
Also, avoid impulse shopping and make a point to not use your credit card unless absolutely necessary while paying off high balances. You don’t want to add to your existing debt by racking up charges.
Finally, if you are unable to resolve your debt issues on your own, call a credit counseling firm. Consumer Credit Counseling Services is a nonprofit agency that provides free education and counseling to consumers. To find a location nearest you, call 1-800-388-2227.