Does the thought of dealing with your debt make you want to go back to bed? More than 1 in 5 Americans (22%) are likely to put off a debt repayment plan, according to a June 2022 NerdWallet survey conducted online by Harris Poll.
That’s a lot of procrastination, and it’s no wonder why. Facing your debts isn’t exactly a fun way to spend an hour. However, there are actions you can take that make getting out of debt seem more achievable. And there are ways to lower your interest payments, which will save you money while you work to pay off your balance.
“We see debt as, ‘Oh my God, I messed up,'” says Kate Melitz, a certified financial advisor in Olympia, Washington, with a Ph.D. in Personal Financial Planning: Americans struggle to pay off debt, struggle to save and struggle to do the things that they We know it’s the right thing. We just have to say, ‘Well, that was yesterday.’ What can I do to take one step today? “
1. Leave Yourself First, Then Make a Plan
The first and most difficult step is to understand how you got here. When Valerie Rivera, a certified financial planner and founder of FirstGen Wealth in Chicago, works with clients, she helps them look at credit card data to rank purchases and look for spending patterns. This makes it easy to create a new spending plan that leaves room to pay off debt.
Here’s why this part is important: It takes you off autopilot. Perhaps you were making minimal payments on your debts because that’s what you felt you could handle. And while this approach allows you to avoid late fees and knock down your credit score, it will keep you trapped in debt for much longer. If you can shift your spending even just a little bit, you may be able to afford larger payments.
If you have $10,000 in credit card debt with an interest rate of 17% and pay $150 a month for your balance, it will take 17 years (and cost $20,820 in interest) to become debt-free. This is assuming that you do not add to your debt balance during that period. But if you can double your monthly payment to $300, you’ll spend $3,629 in interest and be out of debt in about four years.
“If you have debt, you are normal. It is possible to get out of it and confront it,” Rivera says. “The first thing is to confront it and give yourself grace in the process.”
2. Make some bigger financial moves
Freeing up more money to put into debt is a start, but you may have to make additional changes to achieve more effect.
Rivera sometimes recommends temporarily limiting contributions to retirement accounts if your credit card’s interest rate exceeds the return you’re getting on investments. She also considers whether her clients can make more dramatic changes to their lifestyle, such as taking a side action to get more income, or having her roommate cut their living expenses.
It can be helpful to work with a financial professional when making big changes. If the cost is limited, the Association for Financial Counseling and Planning Education offers free one-on-one virtual sessions with certified financial advisors for a limited time.
3. Lower your interest rate
Combine the above actions and lower your interest rate so you can save even more. Here are some strategies to consider.
– Ask for a lower rate: Contact your credit card company and see if you qualify for a lower interest rate. They may say no, but it doesn’t hurt to ask.
Look for balance transfer credit cards: These offers generally charge a one-time fee and require good credit (FICO scores of at least 690). But they allow you to transfer debts to a card with 0% interest for up to about two years, depending on the card. You’ll save on interest, but don’t let your debts stay there without a plan. Aim to pay off your debt before interest starts again, and use debit cards or cash to make purchases so you don’t add to your debt.
Discover Loan Consolidation: A personal loan allows you to combine your high-interest debt into a low-interest monthly payment for a specified period of time, if you qualify.
Take advantage of home equity: A home equity loan or line of credit can provide lower-interest financing that you can use to pay off your credit card debt. But you risk losing your home if you can’t pay off your debts in the future, so be careful.
This column was provided to the Associated Press by personal finance site NerdWallet. Sarah Ratner is a writer for NerdWallet. Email: email@example.com. Twitter: @SaraKRathner.
NerdWallet: Defining Personal Finance: A Guide to Maximizing Your Money https://bit.ly/nerdwallet-personal-finance-defined-the-guide-to-maximizing-your-money
The survey was conducted online within the United States by The Harris Poll on behalf of NerdWallet from June 14-16, 2022, among 2,039 US adults aged 18 or older. Sampling accuracy for online Harris surveys is measured using a reliable Bayesian interval. For this study, the sample data is accurate to within +2.8 percentage points using a 95% confidence level.
Association for Financial Advisory and Planning Education: Free Consultation https://findanafc.org/home/pro-bono/