Since before March, the global commercial market has been in a tailspin. Workers around the world are struggling with pay cuts, medical costs, layoffs, and other obstacles that are impeding their ability to make ends meet.
More than 56% of Americans have taken on debt to pay bills and stay afloat amid these economic changes.
Read on to learn more about the new wave of pandemic-inflicted debt, and how to manage your outstanding balance during this time.
Take a Breath
Debt is scary, but panicking will only make the problem worse. Taking on a balance to cover emergency expenses is often a necessary step for survival, and it’s possible to get out in less time than you might think.
Once you’ve decided to make an action plan, you’ve already taken on the first step toward financial freedom. Simply understanding that there is a problem which needs to be solved is a major part of any personal finance goals. Confronting bill collectors, loan servicers, and other entities is a great way to start the process.
Holding all of your financial worries internally is a recipe for disaster, whether you’re handling your money as an individual, couple, or household. Your state of mind can have a significant impact on the outcome of any decision or action made to reduce your debt.
Overcoming debt stress is a process, but it starts with taking a breath and calming your mind. Taking a step back to relax will help you tackle your new objectives with a clear, focused mind.
Make a Budget
The most important part of any debt management strategy is knowing how much you can afford to pay, which can be done by drawing up a budget. This is also the most effective method for reducing your variable expenses, and applying that amount to your monthly payments.
Mortgage lenders, payday loan services, title loan companies, auto loans, and bills all require their own payment terms, interest rates, and individual requirements. It’s important to always be sure that you’re paying bills on time, and the right amount.
Sit down with all of the contributing members of your household, and determine exactly how much money is being brought in every pay period.
Then, take a look at your variable, static, and discretionary expenses. This part of your financial profile will tell you how much wiggle room you have, and how much you can reliably allocate toward debt every month.
Use the Snowball Method
Part of building a successful debt management is keeping your morale up. Debt reduction can be a slow-moving machine and it’s easy to get discouraged by seeing a balance on your account over time.
The snowball method is a great way to stay motivated and celebrate small victories, as the goal is to eliminate your smallest debt first.
Additionally, this tactic is attainable for those who may have experienced a reduction in work hours or a partial layoff that caused a decrease in income. Putting away small amounts can add up quickly, and you’d be surprised how easily these changes can become a part of anyone’s routine.
Handling your smaller balances first is less overwhelming and seemingly more attainable than larger amounts. As the numbers go down over time, borrowers can enjoy the small sense of accomplishment with every alert.
Check In Regularly
As with any structured plan, it’s important to understand your progress to see how far you have to go. If you’re trying to get out of debt that you collected during the pandemic, staying on top of your spending habits and payment history is critical.
Checking your budget often will prevent you from falling behind or being blindsided by:
- Cost increases
- Changes in payment terms
- Additional fees
- Unexpected emergencies
- Recurring bills
- Due date changes
Being proactive is the first line of defense, no matter how much debt a person is carrying around at any given time.
Budgeting is a constant responsibility, and understanding your goals and individual circumstances is essential for building an action plan. Taking just a few small steps can make a huge impact on any borrower’s ability to pay off consumer, student, or medical debt.
