Debt affects more than just our financial well-being; having money problems can also affect our physical and emotional health, which is why it’s important that we understand how to deal with debt stress. Fortunately there are steps you can take to reduce or eliminate debt, so you’ll feel better about your personal finances. Below are some strategies you can use to help you deal with debt stress and get debt relief.
Take A Financial Snapshot
In order to see the big picture of what you owe and what it's costing you. Start by writing down all of your debts, include credit card balances, loans, and anything else you owe. Next to each balance record the interest rate, minimum amount due each month, and payment due date. Then, take a deep breath and know that you’ve just taken the first step towards clearing your debts and relieving stress.
Assess Your Financials
You’ll need a clear understanding of where your money goes each month so you can create an accurate budget that includes paying down debt. By reviewing your expenses you will be able to track spending habits and identify areas that you have wastefully spent. This will show where you can cut spending and use that money to pay down your debt faster.
Create a Budget
Budgeting helps you see how much money you'll have left over after paying for your non-negotiables, such as housing and basic food, plus meeting your minimum debt obligations. A common budgeting method is the 50/30/20 rule, which means that you will utilize 50% of your income for necessary living expenses, 30% for wants, and the remaining 20% for saving and paying down debt. By creating a financial plan that pays your bills, covers your living expenses, and strengthens your savings, you will gain greater peace of mind about your overall financial wellness.
Supplement Your Income
If your budgeting reveals that paying for your necessities and working to pay off debt is still overwhelming with your current income, consider finding ways to supplement that. An increase in income, even just a slight one, can help you improve your cash flow and direct more funds toward your debt.
- Look for a side hustle with a low barrier of entry, such as driving for a ridesharing service or pet sitting.
- If you have skills in a field with opportunities for freelancing, such as web design or online marketing, contracting out these skills on the side can help you bring in money around your current schedule.
- Sell items you no longer need, such as electronics or clothing.
- Consider if you might be able to fit a part-time job around your current work or ask for additional shifts or overtime at work.
Tackle Debt Wisely
When it comes to paying down your debt, there are various strategies you can implement.
- Focus On the Highest APR First: Also known as the debt avalanche plan, this strategy prioritizes paying more on the accounts with the highest annual percentage rates. Paying more allows you to lower your balance faster so you’ll pay less interest over time.
- Pay Off the Lowest Balances First: This method focuses on paying more on the smallest loan balances first to pay them off quicker; and paying only the minimum on the other balances. Once the smallest loan is paid off, apply those freed up monthly payments as part of the next lowest loan until that one is paid off. Known as a debt snowball, you’ll continue to build a bigger monthly payment on each loan until they are all paid off.
- Pay More Than the Minimum: Paying more than the minimum amount due on all your loans is a good strategy to reduce debt because you are lowering the principal balance owed. Doing this helps you pay off the debt quicker and pay less total interest.
- Consolidate Debt: If you have multiple debt accounts, consider consolidating your debt into a single monthly payment with a single rate. Many lenders offer debt consolidation loans. Or you could look into a Home Equity Loan or credit cards that offer an APR introductory offer on balance transfers. Then do your best to pay off your balance before the introductory period ends.
Seek Professional Support
Consider meeting with a financial professional to discuss your debt and plan a path forward. Credit Union of Denver offers Financial Wellness Coaching. Our Certified Financial Coaches can assist with Budgeting/Spending Plans, Saving Plans, Debt Reduction Plans, Credit Report Reviews, and Financial Education/Resources. Available by appointment only, give us a call at 303.234.1700 to set up your session.
Prioritize Self-Care
When stress from debt is impacting your mental health, start by taking care of yourself. Although working towards a solution is an important part of overcoming debt stress, it’s just as important to not neglect your health. Make sure you take some time to relax and do what you can to take your mind off the things weighing you down. Reach out to friends and family who you can trust to talk about your finances with.
Debt does more than limit your financial freedom; the constant worry about the state of our finances also puts a strain on our mental, emotional, and physical health. If debt stress is weighing on you, try these debt management strategies to regain control of your financial situation. You won’t become debt-free immediately but knowing that you have a plan in place will do wonders to help ease your debt stress.