Debt is one tough son of a gun.
According to Northwestern Mutual’s 2018 Planning & Progress Study, the average American is saddled with $38,000 in personal debt. And that doesn’t even account for home mortgages! Perhaps more alarming, the study finds debt is rising (up $1,000 per person from 2017) and the population carrying “no debt” is shrinking (from 27 percent, down to 23 percent).
Of course, debt doesn’t just happen. It’s always tied to something.
Below are a few possible reasons you’re still struggling with debt, and a few suggestions for how to overcome those circumstances.
Overspending
The first reason for struggling with debt is fortunately the easiest to curb. If you’re overspending on groceries, subscription services, clothing, dining out and the like, the simple solution is to stop overspending.
If you’re going above and beyond in your spending, you may also be over-relying on credit to cover those costs. Instead, consider carrying a predetermined amount of cash with you. Think of it like an allowance. Once that cash dries up, you must train yourself to say “no” to buying a new pair of jeans, lunch with a coworker, or even drinks with your wife. In time, you’ll find a workable spending plan that keeps you satisfied without wreaking havoc on your wallet or your credit score.
Excessive Healthcare Costs
The number-one reason Americans file for bankruptcy is due to medical debt. While you can certainly curb spending when it comes to clothes and dining out, it’s virtually impossible to shun health issues indefinitely.
Banking on insurance to cover the costs might not be enough. The Kaiser Family Foundation finds more than a quarter of U.S. adults struggle to pay their medical bills, even with insurance.
To stymie medical issues from bankrupting you, do your best to create an emergency fund of at least $1,000. That way, if you’re blindsided by an injury, medical emergency, or other unforeseen cost, you won’t be caught totally off guard.
No Budget to Speak of
Don’t have a budget? That’s a problem. It’s easy to overspend when you don’t know how much is realistic.
Sure, building a budget might not sound fun; but it’s vital nonetheless. Start by calculating your take-home pay each month, then subtracting your anticipated costs. Start with rent, gym fees, loan payments – anything that you know the exact amount. Next, tally up all the variable costs including electricity, groceries, gasoline – and anything else that requires monthly payments but varies in total.
In the end you may find more disposable income than you thought. Or, you may find how tight your budget really is. Either way, you now have a map to navigate your life.
No Savings Plan
Financial expert Andrew Housser touts the importance of financial planning one year, five years, and 10 years down the line. This is good advice because it puts the importance of saving in a wider perspective.
Rather than just saving what you can, this strategy urges folks to think about holiday spending, a large purchase they plan to make in the next few years, and the potential financial obligations they may have in a decade’s time.
Create a short- and long-term savings plan to prep yourself for the future.
Only Paying the Minimum Required
Carrying a balance on your credit card is normal – until it isn’t. Unfortunately, many people prefer to pay the minimum balance on their credit cards thinking it’s helping them.
While it’s better to pay something rather than nothing, the minimum balance is designed to extend lines of credit as long as possible. During this time, the interest rate accumulates and drastically increases the overall cost.
To avoid losing control, do your best to pay off purchases when you make them. If you need a little extra time, that’s okay. Just pay off what you can, when you can, rather than just relying on the minimum due.
Debt might be tough to overcome, but a little bit of planning and anticipation goes a long way.
Feeling like you’re saddled with more debt than you can handle tends to be stressful. The link between how people’s perception of their financial well-being affects their overall well-being has been researched and documented. It’s tough to feel secure when debt makes it seem like your finances are controlling you, rather than the other way around. It’s only natural to want to find a solution to this money-related discomfort as soon as possible.
But getting out of debt rarely happens overnight, or even within the course of a few weeks or months. The key is taking one step at a time with the goal of getting out of debt gradually and sustainably. Here are three strategies for doing so.
Stick to a Repayment Strategy
You’re making payments toward your debt every month, but it feels like you’re barely making a dent in your balances. How is this possible? High interest rates may be to blame here. In some cases, minimum payments may barely cover rapidly compounding interest — barely bringing down the principal balance owed.
Sticking to a targeted repayment strategy will help you make actual progress on paying down your debts one at a time. It’s up to you in which order you’d like to prioritize your debts.
Many people find the snowball method, coined by financial expert Dave Ramsey, gives them the motivation they need to keep working toward becoming debt free. Here are the steps:
- List your debts in order from smallest balance to largest balance.
- Keep making minimum payments on all your debts every month.
- Pay as much as you can toward your debt with the smallest balance.
- Keep repeating until you’ve paid off every debt.
The avalanche method offers an alternative in which consumers repay their debt in order from highest interest rate to lowest interest rate. This aims to minimize how much interest can accumulate during the repayment process.
Sticking to one of these debt elimination strategies will help you pay down debts consistently each month, one by one until they’re all gone.
Speak with a Credit Counselor
Credit counseling can help you gain a better understanding of your debt and your options for dealing with it. You can typically meet with a credit counselor at a non-profit agency for free, which is why it’s a solid first step for anyone to take.
Your counselor should be able to offer advice on managing your money, personalized budgeting and addressing your debt. You may also be eligible to enroll in a debt management plan (DMP) through that agency, which is a structured program for paying back debts in three to five years — often at a lower interest rate than someone repaying debts on their own.
Make a list of any questions you might have ahead of meeting with a credit counselor and prepare all the necessary financial documents you’ll need to bring along. This will help you get the most value out of your session.
Keep Building Your Emergency Fund
It may seem more logical to pay down debt than to save money. But it’s important to keep building your emergency fund month by month. Why? Because then when an unexpected expense crops up you’ll be able to handle it without needing to incur more emergency debt. Putting sudden expenses — like a car repair, hospital bill, vet visit or home repair — on a credit card with interest will keep you trapped in debt even longer.
This is why experts recommend you make payments toward debt and keep building your emergency fund.
Take baby steps like these toward getting out of debt. Sustaining your efforts over time will make a lasting change in your financial situation.
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