Debt can be a scary word. Whether you’re young and in University, or you’re 45 and well into your career, debt can affect anyone and everyone. According to statistics from Nerd Wallet, the average amount of debt for a US household is $15,607 on credit cards, $153,500 on a mortgage, and $32,656 in student loans.
For the average person, $201,763 in debt is absolutely terrifying. What’s even more terrifying are the national statistics. Americans as a whole are $11.63 trillion in debt (the US government is $17.75 trillion in debt, according to US Debt Clock), which is actually a 3.8 percent increase from last year. $880.5 billion is on credit cards, $8.07 trillion on mortgages, and $1.12 trillion in student loans (11.5 percent increase).
Those are some big, scary numbers. But the individual numbers are only averages, and the national numbers are, well, national numbers. They encompass the accumulated debt of more than 310 million people. Unfortunately, these numbers tell a somewhat depressing story of how debt has quite a hold on the country. Yet, hope is not lost, there are many ways to work towards controlling, and eventually paying off, your debt.
Take Control of Your Spending
So, the obvious answer, right? Well, yes. If you have a debt problem, you need to control your spending habits. The chances are, a good chunk of your debt is on credit cards or in student loans (or both). Depending on your situation in life, you might also have a mortgage on a house or car payments to deal with. But, credit cards and student loans are usually the bulk of a young person’s debt.
When working to regain control of your spending, CNN suggests creating a list of everything you buy in a month. You can then use this list to see where you are doing a lot of unnecessary spending and figure out where you need to cut back. You can also stash the credit cards and shift to using cash only. Recent studies conducted by Dun and Bradstreet found that consumers are likely to spend 12-18 percent more when using credit cards. So shifting to cash can help cut back.
If some of your debt is business related, visiting an eCommerce provider like Shopify can help give you some ideas for potential money-saving changes in your store.
Not All Debt is Bad
An important step you take in learning to understand your debt is accepting that not all debt is actually bad for you. It may sound crazy, but you can make some debt actually work for you. Money Management states that it’s basically impossible to stay away from credit forever. You will likely need to use it at some point, such as getting a mortgage for a house or even a loan for a new car.
Using a credit card is like giving yourself a high-interest loan to buy anything you want as long as it fits under your credit limit. You can use this to your advantage as interest won’t start accumulating on your card until you start running a constant, monthly balance. So if you fully pay off your credit card balance every month, you will never have to pay interest, and you’ll be working on improving your credit score as well.
You can actually make money with credit cards through clever use. If you know you have the money to make a purchase, but use a card instead of cash, that cash can remain in your savings or other growth-focused accounts to continue accumulating interest until the end of the month when you pay your card bill. You won’t have spent anything more than you planned, but you can make some profit out of it in additional interest.
Examine Interest Rates
If you have multiple debts, you need to figure out all the details about them. You need to know how much the principle is (what you own without interest) and you need to know what the interest rates are. Nerd Wallet states you should pay off your debts in order of highest interest rate first and lowest last. But don’t miss any payments on one to finish paying off another.
Know Your Rights
Not many people realize they have rights when it comes to debt. In 1977, congress passed the Fair Debt Collections Practices Act. This act laid out a list of rules that debt collectors must follow. According to Alter Net, besides reading through the rules to understand when a debt collector is doing something illegal, you should also keep a record of all correspondence between you and the collector. If they’ve done something illegal, you have a year from the violation to take some form of action.
The tips and strategies mentioned here are not the only actions you can take to regain control of your debt. There are plenty of other things you can do and other resources to access. Not all repayment strategies will work in your particular situation, so you might need to do some research to find one that does. But once you’ve settled on a method, you need to remember that it isn’t the only possible route. The Huffington Post states that you need to keep your plans fluid. You need to continually monitor your debt and financial situation so you can establish whether changes need to be made.
*Image courtesy of Flickr