It can happen to even the most responsible family: you get hit with unexpected job loss, large medical bills, or a combination of emergency expenses that your income and savings can’t quite cover. You turn to your credit cards as a temporary stopgap, and the next thing you know interest charges and fees rack up and you are in much more debt than you ever intended to be in.
The most important thing to keep in mind is that you can dig yourself and your family out of debt. By proactively tackling your debt you will soon get back to a place where you have the financial breathing room to focus on saving and building wealth instead of just making credit card payments.
Here are a few concrete ways to accomplish this:
Take an Honest Look at Your Debt
Being in debt can be quite scary, which is why so many people bury their head in the sand instead of confronting their financial situation. In reality though, making an honest reckoning of exactly what you owe and to whom is the first important step toward getting out of debt.
Sit down with your laptop, a pad of paper and a pen, and all of your bills. Make a simple list (you can upgrade this to a spreadsheet later) of each debt, including the company name, account number, total amount, minimum monthly payment, and interest rate. Also consider consolidating your loans at a low interest rate from Sofi.
Find Ways to Trim Your Budget
Now that you know exactly how much debt you are dealing with, it’s time to find more money in your monthly budget so you can increase your payments above the minimum. Using free budgeting software like Personal Capital can be very helpful during this stage. Look for areas of over-spending or frivolous expenses you know your family can live without. This may mean switching cell phone carriers to get a more affordable family plan, cooking more meals at home, and replacing your premium cable with Netflix or Amazon Prime. The key is that this money you are no longer spending on unnecessary things each month should now go directly to your debts.
Aim to Make More Money Each Month
In order to turbo charge your debt management and get your family to the next level of financial health, it’s also a good idea to find ways to make more money. If you are way overdue for a raise at work, put together a proposal and meet with your boss (or apply for better paying jobs). Turn your writing, clothing resale, or web design hobby into a freelance side gig and use your profits for paying down debts. You can get the whole family involved by gathering unwanted belongings that are gathering dust and having a huge garage sale.
Consider Credit Counseling
If your debts are truly more than you can pay, it may be worthwhile to sit down with a non-profit credit counselor to go over your options. Depending on the severity of your problem, these options may include debt consolidation or even bankruptcy. Be sure to choose a credit counselor certified by NFCC to ensure you meet with someone reputable who won’t get you into an even worse debt situation.
Begin Building Your Savings
If your family doesn’t have a safety net in the form of emergency savings, odds are that you will end up in the same overwhelming debt situation in the future. If you have savings, on the other hand, the next time an unexpected bill pops up you will have the money to cover it without needing to rely on credit cards. Once your debt is under control, keep up your hard work of trimming your budget and finding ways to make more money. Put this extra money in your savings until you have built up a cushion of at least 3-6 months worth of income.
By managing your debt in a responsible way instead of ignoring it, it may surprise you how quickly you are able to pay things off and start saving again.
Latest posts by The Fortunate Investor (see all)
- Family & Money: Why Setting a Budget is Important - August 18, 2018
- What Resources Will Help You To Run Your Own Business? - August 15, 2018
- What Should A Trader Know Before Getting Started In The Market - August 14, 2018