Managing debt is challenging. But if you’re doing it while you’re in the midst of a financial crisis, it becomes all the more difficult to commit to. Why? Because you have to deal with the limited financial resources caused by the crisis you are in.
Take a look at what happened in 2020. 12.9 million people lost their jobs and several businesses had to close. How can you expect these people to pay for their monthly needs – much less all their credit obligations?
It’s not unknown to us how the pandemic has caused a lot of problems for everyone. It did not just threaten the health of everyone. It also caused people to lose their source of income.
Although what happened can be considered a national emergency, it doesn’t exempt anyone from paying off their debts. You are still required to meet your payments. The government will work out something with the creditors and lenders to give consumers reprieve – but this won’t be forever. So if you really want to pay off debt, you have to get serious about managing debt regardless if you’re going through a crisis.
Managing debt properly despite a financial crisis
Debt, in general, is hard. Paying it off will be challenging simply because you’ll go through a lot of temptation to use your money to pay for something else. There’s always something that seems more important than your debt payments. It could be an emergency situation. Or if you lost your job, you won’t think twice about using your debt payments to buy your family some food.
Some of these reasons are not really bad. But the fact remains that your debt payments will not always be guaranteed. That’s because we don’t know what will happen in the future.
Of course, that doesn’t mean you can’t exert more effort to ensure your debt payments. There are things that you can do to help in managing debts – no matter what situation you are currently in.
Know your debts
The average American has $51,900 worth of debts. If you want to be good at managing your debts, you have to be aware of this amount. But beyond that, you should also know the different types of debt that you owe money to. A lot of us have credit card debts, mortgages, car loans, personal loans, medical debts, etc.
Part of managing debt is the knowledge of how much you really owe and where you owe it from. You can’t really manage something unless you know everything there is to it. Having incomplete information will only give you a partial idea of what you should be managing. It will lead you to miss out on something important. And it can also cause you to make the wrong decisions about your debt situation. So if you really want to manage your debts properly, make sure you have a complete understanding of what you owe. That way, you can align it with your budget.
Take control of your expenses
Now that the word budget is mentioned, it’s time to look at your expenses. Part of managing debt is to make sure your expenses are under control. That way, it won’t compromise your monthly debt payments.
In case your source of income is compromised, you can also look at your expenses to check how you can lower it. Maybe there are expenses that you can stop spending on. What you save can be put towards your debt payments so you can continue paying it off.
Create a debt repayment plan
Having a debt repayment plan makes things a lot easier. This will guide you as you try to completely pay off what you owe. This specific repayment plan usually involves a payment technique that will suit your current financial situation. Like if you are in the midst of a crisis because you lost your job, you probably need a debt reduction. Especially if you’re not sure when you can find a new job.
But if you know that your situation will only be for a short while, then maybe a debt consolidation plan is all you need. Then again, if you want to get the help of a professional, it’s best to opt for credit counseling or debt management.
Make sure you take your time choosing the right repayment plan. That way, you can adjust your efforts in managing debt to suit the strategy you’ll use to achieve debt freedom.
Avoid adding to your balance
If you want to survive the financial crisis that you’re in, make sure that you get better at avoiding debt. At least, the unnecessary ones. There are debts that you can use to improve your financial situation. Like a mortgage or student loans. But there are debts that will only make things worse. Like if you use your credit card to buy things you don’t need and you don’t pay the balance in full. That can quickly turn into a huge problem.
Being in the middle of a financial crisis means your funds are limited. It will be hard to keep paying for all your monthly needs while paying off your debts. So to make sure you won’t make things worse, stop adding more to your debts – at least until you have paid it all off or a significant amount of what you originally owe.
Strengthen your emergency fund
Managing debt means you have to consider the future as well. You have to be prepared with an emergency fund that can get you out of tough situations without using debt.
You see, a lot of people got into a tough debt situation because they weren’t prepared for unexpected expenses. Things like an immediate car repair, a trip to the ER, or broken heating or cooling system. If you are not prepared for this, you’ll be forced to use your credit card to pay for the expense. If you can’t pay it in full, you’ll end up paying the finance charge along with what you owe. You’ll be wasting money paying the interest when you could have avoided it.
By having enough emergency funds, you can avoid relying on debt to pay for unexpected situations.
Lessons you’ll get after managing debt
Managing debt will not just help you pay off what you owe. It will also bring a lot of important benefits. Like helping you learn good financial habits. Paying off your debts over a couple of months or years would mean you have to set aside some money consistently. This habit will make it easier for you to save more money in the future.
But apart from that, there are other lessons for you to enjoy.
Learning from your mistake
Since paying off debt is tough, you’ll definitely realize how much of a mistake it can be to let debt accumulate. Although there are positive uses to it, being irresponsible with its use will only compromise your current finances.
When you are forced to sacrifice some expenses so you can meet your credit obligations, you’ll realize this is something that you should try to avoid in the future.
Learning to use credit properly
Since debt has the ability to compromise your finances, you should be careful whenever you decide to use debt. You can still use your credit cards. It can be convenient and it also provides a certain level of protection. But if you have to use debt, make sure you learn how to use it properly. This is how you can avoid compromising your financial situation.