*THIS IS NOT FINANCIAL ADVICE
Tips for Dealing with Debt
Dealing with debt can be stressful but it is important to not let it overwhelm you. The key to handling debt is keeping everything organized and for this you need to keep a clear head.
Regardless of how much debt you have, the approach is the same. These are the Foster and Monroe, LLC tips for dealing with debt quickly and as painlessly as possible.
Tip #1: Verify the Debt
People feel pressured when they receive a letter about an outstanding payment or when a debt collector contacts them. Often, the first instinct is to immediately accept it.
However, sometimes things get mixed up in administration which leads to unfair payment demands. It is important that you always verify whether you truly owe the debt, even if you feel pressured by a debt collector.
Check your own financial records for when you made the purchase or loan and then whether you have paid it (in part) or not. Only after verifying that the debt is legitimate should you take next steps.
Tip #2: Organize Outstanding Debt
Keeping track of what you owe should be part of your financial housekeeping. This applies to both small and large debts.
Always keep a record of exact amounts, the creditor, the payment schedule and interest. Not only does this give you a complete overview of your debts but it also acts as a reminder to make the payments on time.
It is very common for a small outstanding payment to be forgotten and then grow into a more serious debt. If you use your creditcard often or have a loan, it is essential that you keep an up-to-date overview of all the details.
Tip #3: Put Payment Dates in Your Monthly Calendar
Since more and more payments are done online, it is easier to forget about them. Or worse, it becomes easier to procrastinate because online payments are done rather quickly.
Set a reminder in your calendar for due dates to avoid late payments. If you know that you tend to push this task aside then set several reminders in your calendar.
With debt, it is very important to make payments on time because you are risking late fees or paying interest for even longer. So, be sure about when your payments are due and add them to your monthly calendar.
Tip #4: Plan When to Pay & When to Save
Another risk of debt repayments is not having enough cash on hand on the day that it is due. That is why the overview mentioned in tip #2 is so important.
Using that overview, you can plan how much money should be in your bank account on which dates. Planning out when to make payments is especially useful when you do not have a regular income or when you don’t get your paycheck at regular intervals.
Planning your payments not only helps to avoid spending money needed for a debt payment but it also gives you better insight into your own liquidity. It can also help you create a realistic payment schedule if you are involved with a debt collector.
Tip #5: Make a Realistic Payment Schedule
Many people have the tendency to agree to a payment schedule that is not realistic for them. Perhaps it is because they feel pressured by the debt collector or they want to pay off the debt as quickly as possible.
Although that is understandable, a payment schedule that is too ambitious only puts you at greater risk. You are more likely to be late with payments or come up short – both of which could add on extra fees and penalties.
When setting up a payment plan, it is better to opt for smaller amounts over a longer period of time than very large amounts over a shorter period of time. Yes, you may be avoiding some interest but the penalties that come with late payments or insufficient funds can cancel out what you are saving on interest.
Tip #6: Prioritize Your Debts
Not all debts have the same urgency. Certain debts should be paid off as quickly as possible while others can be paid off at a slower rate.
Check the overview of all your debts and create a priority list. High priority debts are those with high interest rates because these will cost you more money over time.
Lower priority debts are those with very low interest rates or debts that are frozen for a set number of time – student loans are a common example. Focusing on the high priority debts first will help you keep control over your finances.
Tip #7: Pay Off Small Debts Whenever Possible
Besides ranking debts based on priority you can also rank debts based on the actual amount. In this case, the focus is on the smaller amounts.
There are two advantages to paying off a smaller debt first. The first advantages is that it gives you a win which helps your motivation in repaying the other debts.
The second advantage is that it is one less thing to worry about. By repaying smaller debts you avoid them becoming less manageable debts plus they can no longer add to your stress.
Tip #8: Continue Saving
Although it requires you to be extra careful with your money, it is very helpful to continue saving while paying off your debt. This may seem counter-intuitive but it is actually a safety measure.
What you are able to save is available for when there is an emergency payment, for example, a hospital visit. By having a certain amount in your savings, you can make these emergency payments without having to dip into the funds intended for debt repayment.
These savings help you stay in control of your debt repayment schedule. If you are already working with a tight budget then an unexpected bill could easily derail your finances.
Tip #9: Know Your Rights
There are certain laws and regulations on debt repayments and what debt collectors can and cannot do. It is important that you are aware of these rights to avoid stepping into a situation that you do not need to be in.
For example, there are certain statutes of limitations on debts which may mean that certain debts could be written off. There might also be tax exemptions or other benefits related to having certain loans.
For every type of debt that you have, read up on what is and what is not required of you. This may take some time but it could also save you a lot of money.
Tip #10: Don’t Be Afraid to Ask for Help
There is a reason why there are so many financial experts and debt consultants. Dealing with debt is not always straightforward and it is perfectly normal to not understand everything.
If you find yourself unsure about things or simply overwhelmed, reach out to someone. This can be a professional but also someone in your circle that you trust.
You are not the only one dealing with debt and household finances. Take comfort in that and don’t feel shy about asking for help when you need it.
Nobody enjoys dealing with debt but it does not have to be horrible, either. The most important thing to remember is to stay calm and stay organized.
If you are able to do those two things you are already in a better position to handle debt. Recognize which of your own behaviors are not helpful and find little tricks that will help you to stay on top of things.
Simply creating an overview of all your financials can help give you better insight into how to do things right. And if you cannot find a solution on your own, reach out to someone trustworthy that can help you.