Having debt makes it easy for you to lose financial control. When that happens, it brings a lot of negative effects – mainly on how you manage your finances. You see, when you lose control over something, you feel more helpless about it. You don’t feel confident about making decisions and that makes it harder to improve on it.
That becomes a problem when you have debt because obviously, your finances have a lot of room for improvement. You need to have your wits with you to find the best possible solution to get out of debt. If not, it will take longer for you to solve your credit situation. The longer it takes, the more you have to pay towards the interest. And you will also have to delay a lot of financial goals in the process.
As you can see, there’s a lot of things at stake if you don’t have a concrete plan to pay off your debts. And with the recent statistics about American consumer debt, it’s evident that a lot of people are probably losing control over their finances.
Thanks to the pandemic and recession that happened in 2020, people have found themselves with more debt to their names. In March, consumer debt reached a new record of $14.3 trillion. The higher the debt the harder it will be to maintain full financial control.
But that doesn’t mean you can’t do it.
How to regain financial control
If you really want to improve your current situation, you have to work on regaining control over your personal finances. There are 4 ways you can do this.
Create and follow your budget
One of the first things that you need to look for is budgeting advice. If you have lost financial control because you are struggling with debt, that means there’s something wrong with your budget plan. It’s either you don’t have one or the one you are currently using is not updated.
You see, your budget plan shows your income and the different expenses that you have to meet. When you stick to your budget, that means you are only spending on the expenses on that list. Debt happens when you don’t follow this budget. It means you are spending beyond your income. So if you want to improve your debt situation so you can control your finances, you need to make sure you have the right budget plan.
Using the right budgeting strategy will help you regain financial control because it gives you what you need to make decisions.
Stop using your credit card
If you lost control over your finances because you’re struggling with your debts, it only means you have to make sure you don’t add to it. What you currently have is already giving you problems. Why would you make it worse by adding to it?
So hold off borrowing more money until after you have put your current ones under control. This is specifically true for credit card debts. The high-interest rate will make it harder to completely pay it off. And it will be harder if you can only afford to pay the minimum payment requirement.
Formulate a debt payment scheme
It’s one thing to stop adding to your debts. What will you do with the existing credit that you owe? You have to build your debt repayment fund if you want to pay it off. Of course, having money is not enough. You need to have the right strategy that will maximize your payments and get you out of debt faster.
There are many options for you to pay off your debts. You have a debt consolidation loan, balance transfer, debt management, and even debt settlement. Make sure you understand how each of these will affect your debt and finances.
Once you have chosen the right repayment plan, you will start to really feel like you have financial control. The more you understand about the debt solution you used, the easier it will be to know what to expect. Knowing something about the future will definitely make you feel more secure and in control.
Find a way to lower the interest rate
Finally, you also have to work on lowering the interest rate of what you owe. This is especially true for credit card debts. You need to learn how to negotiate with creditors. You can ask them to lower it for you. The best way to do this is to tell them how good you are with making payments in the past. Or you can tell them that your current financial situation is struggling right now. Ask them to help you keep up with payments by lowering your interest rate. If you are sincere in your plan to pay it off, they should be able to help you.
In case they are not relenting, there’s still something you can do. You can choose a repayment plan that will help you lower your interest rate. For instance, you can consolidate your credit card debts through a low-interest loan. Or you can opt for a balance transfer. These are options that you can use to lower the interest of your current debts.
When your interest rate is lower, it’ll be easier for you to pay it off. That will help maintain control over your finances as well.
What to do after regaining financial control
Once you have regained financial control, what’s next? Don’t lose that control again.
You have to make sure you will maintain it. That means you have to do some tasks that will make it easier to keep control. Here are three things that you can do.
Give your emergency fund a boost
Start with your emergency fund. Most of the time, we lose financial control because of too much debt. So if you want to maintain control, keep a tight lid on your debts.
One of the most proactive ways to do this is to have an emergency fund. A lot of people are responsible with their finances. But because they don’t have an emergency fund, they end up borrowing money to get out of a tough and unexpected situation.
Don’t let this happen to you. Have an emergency fund and give it a boost!
Make bigger payments
Maintaining financial control does not mean you will no longer use debt. There are times when using credit is beneficial. Debts like mortgages or student loans can help improve your financial position. What you want to do is to make sure that debt will not compromise your finances. After all, it can be a burden. You can ask the 6 out of 10 Americans that feel weighed down by debt. You don’t want to be one of them.
That means before you borrow money, you need to have the means to pay it off. To be specific, you should have the means to make bigger payments.
This can be done in two ways. One is by earning more. You can either ask for a raise or you can get another source of income. The other option is to cut back on your expenses. See what you can stop paying for so that you can use the funds to pay off your debt.
Create new monthly goals
Finally, you have to create new financial goals. It’s always a good idea to have goals because it motivates you to stay in full financial control.
Your goals can be anything that will take you one step closer to your dream life. It could be buying a new house. Or paying off all your debts. It can even be creating a passive income that will help you achieve financial freedom. Having a goal can influence all your financial decisions. You have a good reason to make the right choices. You want to make sure that every decision will always take you one step closer to your intended goal.