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Step-By-Step Guide To Managing Debt During A Financial Crisis

November 22, 2020 By editor

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.

4 Lifestyle Changes To Help You Settle Debts In No Time At All

November 10, 2020 By editor

Do you want to settle debts at the earliest time possible? 61% of Americans plan to pay off their debts in 2020. But with the coronavirus and the recession happening at the same time, this may be harder to do. As you know, household finances are tight because of the economic effects brought about by these two events. People are taking in more debt as unemployment rates continue to rise. But even those who still have their jobs, they are still financially crippled. They’ll be hesitant to pay off their debts because they would want to focus on conserving their finances. They’ll need it to pay for their basic needs – in case another crisis starts.

When it comes to priorities, you can bet that Americans will not pay their debts first. Unless, of course, they can find a way to reduce their debts.

This is why it’s a good idea to settle debts. But you have to make sure that you know how to use it properly. Because the whole point of settling debts is to negotiate a debt reduction. That can affect your finances. It can get you out of debt, but you have to know what it means to succeed in settling your debts.

At the forefront of what you have to do is to implement lifestyle changes that will help you afford debt settlement no matter what your financial situation is.

Lifestyle changes that’ll make it easier to settle debts

If you want to settle debts in no time, you need to make changes to your lifestyle. Do you think you can handle that? It’s not impossible – and that’s what a lot of Americans realized when the pandemic hit. In one survey, more than half of their respondents said that they started saving more than what they usually did since the pandemic happened.

This is proof that if you put your mind to it, you can make the necessary sacrifices that will help you pay off your debts. And if you succeed in settling your debts, you may not have to get a huge amount of money to begin with.

But to help speed things along so you can enjoy debt freedom, here are lifestyle changes that you may want to consider implementing in your life.

Live below your means

Whether you are in debt, in a financial crisis, or going through financial abundance, it’s always a good idea to live below your means. What does this mean? It means your expenses are lower than your income. That way, once all your bills are paid, you still have some extra money left over.

What will you do with this extra money? You can use it to improve your finances further. You can opt to settle debts by saving up for a lump sum amount. Or you can give your emergency fund a boost. That way, when something happens, you don’t have to rely on debt to get out of that tough situation.

Downsize your lifestyle

If your current lifestyle makes it hard to live below your means, then you may have to downsize your lifestyle. What’s great about this is if you do it right, you may be able to achieve financial freedom as well.

Downsizing means you will change something about how you live your life so you can save more. Like if you downsize your home, you’ll be saving more than just the amount you’ll pay in your rent or monthly mortgage. You’ll also consume less in terms of utilities. That’ll make your monthly bills lower too.

Consider the things that you can downsize so you can have that extra money to use to settle debts once and for all.

Make more money during your free time

This is probably one of the most proactive ways you can take care of your debts. It’s also the hardest to do. It’ll involve working harder and exerting more effort to increase your monthly cash flow. The more you add to your income, the more you can pay off your debts. At the very least, you can use it to save for the settlement amount that you can use to get rid of your debts once and for all.

But what exactly can you do to make more money? You can go online to find freelance jobs. You can use a skill or hobby that you have and sell something.

If you can set up a passive source of income, that would also be better. Some people have extra rooms or spaces at home that they can rent out. It may be a room that you don’t use. Or it can be the garage that you don’t park the car in. Convert these areas so someone can rent it each month.

Follow the 50/30/20 rule

If you’re not sure how you can change your lifestyle, you can base the changes on how you spend your income. There’s this 50/30/20 rule that involves dividing your income into 3 different categories. Let’s assume that your income is $5,000 after taxes.

The first category is for your needs. You can spend 50% of your income or $2,500 on your basic needs. This includes food and groceries, shelter, utilities, etc.

The second category is for your wants. You spend 30% or $1,500 to pay for the expenses that you want – but don’t need to survive. This can also be food and groceries. But for example, while eating is a necessity, dining out is not. And clothing is a need but not the expensive designer ones.

The third category is all about your future. 20% of what you earn, or $1,000 for our example, will go to your future. This includes your savings, emergency fund, retirement fund, etc. You can also use this to save up for the payment you’ll use to settle debts.

By using the 50/30/20 as your guide, you can manage your finances properly so you can get out of debt once and for all.

Set these targets to help improve your debt situation

If you want to achieve debt freedom, you can set targets that will make it easier for you to settle debts.

Here are two targets you can start with.

Update your repayment plan

There are different debt relief options to help you with all types of financial situations. Choosing the right one, based on your specific debt and financial scenario, will prove to make the journey easier. So if you want to settle your debts, there’s a specific repayment plan that will help you do it. You can opt to work on it on your own. Or find a debt expert to help you. What’s important is you should know how to negotiate your debts. You need to talk to the creditors and convince them to allow you to pay only a portion of your debts. If they agree, you can pay the settlement amount and have the rest of your debts forgiven. This will help you save money on the total debt payment.

Increase your emergency fund

Another thing that you should do is to increase your emergency fund. This will not affect your current debt situation, but it will protect you from future ones. You see, one of the reasons why Americans are in debt is because they rely on credit to get them out of tough emergencies.

Well, this is the fastest way to accumulate debt. So if you can increase your emergency fund, that would keep you from having to use debt during desperate times. According to reports, 6 out of 10 survey respondents said they don’t think their emergency fund will last. If this is you, make sure that you can give your savings a boost. You want to be prepared for any unexpected situation or crisis. This will ensure that nothing will compromise your efforts to settle debts.

4 Common Reasons Why Credit Card Problems Never Stop

October 17, 2020 By editor

Have you ever wondered why your credit card problems never stop? Sure, there are external factors that happen that may lead to it. For instance, reports reveal that 23% of consumers carrying credit card debt blamed the COVID-19 pandemic for the increase in their balance.

This is not surprising. After all, the effects of the pandemic and the recession were quite devastating. Even those who are very careful with the way they managed their finances are probably struggling. If you look at everything that happened since the year started, even those with sufficient emergency funds would have felt the effects too.

But our inability to control these external events does not mean we are completely helpless when it comes to our credit card problems. There are things that we can do to ensure that despite everything going on in our lives, our credit cards will not cause us problems.

How? By knowing the reasons why most people develop a problem with it in the first place.

4 reasons why credit card problems won’t stop

If you think about it, the use of credit cards has been the norm for quite some time now. It’s not really hard to understand how it happened. Our credit cards are very convenient to use. But it’s this convenience that can lead to a lot of credit card problems for most folks.

Here are 4 reasons that you might be able to identify with if you’re constantly struggling with your credit card debts.

We rely on credit cards too much

As mentioned, using credit cards has become normal for most people. You can hardly find anyone who doesn’t own at least one credit card. Report even reveal that the average American has 4 credit cards. The truth is, it’s not entirely bad if you own credit cards. But you have to know how to use it. You can own a lot of cards but make sure you really use all of them. Otherwise, you‘ll be paying for the annual fees unnecessarily. Not only that, it’ll be a huge temptation for you to rely on your cards – especially during times of emergencies. You’ll think that since you have a lot of cards anyway, it’s okay for you to rely on it.

This is where the problem usually starts. When you rely on your cards too much, you fail to realize just how much debt you’ve already accumulated – until it’s too late. So make sure that if you use your credit cards, you plan it first.

We don’t take the effects of credit card debt seriously

Another reason why most of us have credit card problems is that we don’t really take its effects seriously. Despite what a lot of Americans went through during the Great Recession, they are still using their credit cards with complete abandon.

While it’s okay to keep using it, make sure you realize how it can really affect your life. Your credit card debt is powerful enough to make you lose everything you’ve worked hard to acquire. So be very careful. It can make your life unpleasant – and even cause rifts in your relationships. You have to learn to make smarter choices when it comes to the use of your credit cards.

We keep paying the minimum payment requirement

This is one of the common mistakes that will keep you submerged in credit card problems. Paying the minimum requirement will keep you in debt for a very long time. You see, the minimum payment requirement is mostly paying off the interest rate of your credit card. It’s only paying a very small percentage of your principal balance. Since you are basically chipping away at your balance in very small amounts, it will take you forever to completely pay it off. In the meantime, you keep paying interest to the credit card company. What you pay is not really causing your balance to go down.

That means if you stick to this, you’ll still be paying your debt until you reach retirement. So just pay more than the minimum so you can get out of debt as soon as you can.

We don’t have any savings

Finally, your savings will also affect the gravity of your credit card problems. The truth is, some people don’t land in credit card debt because they have made a lot of bad choices. It’s mostly because they don’t have enough savings for emergencies. When someone they love or they themselves have to seek medical treatment, they have to borrow money just to pay for that.

If you want to avoid debt, you have to make sure you have enough savings for emergency situations. You need to start building your savings now. Even if you are paying off debt, it’s possible to multiply your savings. You just have to commit to it.

How to fix credit card problems

Now that you know the reasons why you are stuck in credit card problems, how can you fix it?

Here are three simple ways you can do this.

Stick to your budget plan

First is you have to use your budget plan. Identify your income and expenses. Make sure you have enough room in your budget for your debt payments. If not, then cut back on some of your expenses. That way, you can afford to pay more than the minimum amount on your credit card debts.

If you have set your debt payments in your budget plan, make sure you stick to it. Make it a priority so you can get rid of this debt as soon as you can. The faster you can pay this off, the less money you have to waste on paying the high-interest rates of your credit cards.

Use more cash

It also helps to stick to cash while you are trying to get rid of your credit card problems. While there are times when it’s wise to use credit cards over cash, make sure you’re doing it for the right reasons. You don’t want to make things worse by continuing to add to your balance.

To get rid of the temptation, hide your credit cards. Ideally, hide it in a place where it’s hard to get. That way, you’ll be forced to stick to cash – at least, until after you’ve paid off your balance.

Seek professional help

Finally, you might have to seek professional help when dealing with your credit card problems. A lot of people can pay off their debts on their own. But if you have compulsions that you can’t seem to shake, then it might be best to get the help of an expert. They may be able to identify what the real problem is. It might be your lifestyle. Or maybe you are not following your budget plan. Having another set of eyes look at it will give you an idea about the real cause of your debt issues.

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