There’s talk of a recovery, but between rising energy prices, your usual household bills, and increasing interest on your credit card debt, you may have a hard time recovering from anything. The good news is that you are not the only one, and there is a way out of debt.
If you’re wondering how to get out of a tricky financial situation without making your credit score worse, the first thing to remember is to stay current with all of the bills that you haven’t defaulted on. Avoiding additional fees for late payments or exceeding your credit limit can be just as valuable as erasing old debts. Now is the time to revisit your monthly budget and strategise.
There are two primary approaches to paying off your bills. The first one is to prioritise your debt based on the balances you hold on each credit card or bill. With this approach, you could start by paying off the lowest existing balance so that you can eliminate these cards more quickly. An alternative approach would be to consider your balances based on the percentage of interest that you are paying on each and to eliminate them starting with the highest interest first.
Once you have set a goal for debt reduction, the next step is to plan how you can get there. Essentially, you will have to make more money or spend less money, but the most effective debt reduction plans often include a little of both. You can search for more income by taking on extra hours at work, or turning a hobby, such as baking or landscaping and gardening for example, into a part-time business.
And when it comes to reducing your expenses, most consumers begin by cutting out the “extras”, such as eating out or paying for recreational activities. However, this will likely not be enough money to cover all of your bills. One way to free up an even bigger amount of money is to negotiate with the companies that you owe. For example, call your energy company to see if it is possible to arrange a payment plan so that you don’t fall behind on your bills. And if your company is too expensive, revisit the possibility of making the switch to a less expensive, more local electricity and natural gas provider. If you are a homeowner instead of a renter, you may also want to research what it would take to refinance your home to today’s lower interest rates.
The most important thing to keep in mind when focused on debt reduction is to eliminate your debt not only according to interest rate and balance but also according to its value, which is very different from the total balance. There are good kinds of debt, such as student loans and a mortgage, which either contribute to your overall well-being or contribute to your financial viability. However, credit card debt does not fit the category; in fact, it is the most expensive way to borrow money and has a negative impact on your financial portfolio, which is why it is so important to rid yourself of these balances first.
It can be easy to feel overwhelmed when you find yourself owing bills and credit card balances at the same time. But as long as you keep a level head and focus on these simple strategies, you can dig yourself out of the hole sooner than you think.