Amid record high consumer confidence, the debt burden continues to weigh down many households in America. A State of Credit 2017 report unveiled by Experian shows the average American holds credit card debts amounting to $6,350 and non-mortgage debt of over $24,700. The non-mortgage debts are collateralized credit facilities such as car loans, commercial loans and personal loans. The average student loan has also been rising over the years and stood at a record $34,140 in 2017. The debt situation is worsened by reports showing people are spending much more than their monthly earnings. To bridge the gap, many are turning to new lines of credit.
Experts see the debt as an emotional rather than a rational problem. This is demonstrated by the continued practice of buying stuff one can ill afford. According to Financial Mentor, the top habitudes blamed for the rising debt problem include emotional spending, sense of entitlement, complacency, lack of plan and instant gratification. People with emotional spending problems are often tempted to use shopping as a route to escape boredom or relieve stress. The habit can easily cause bills to pile up, thereby making repayment untenable. Lack of a plan causes a disconnection between spending on one hand and earnings and savings on the other hand.
It also leaves the affected individual with no concrete budget, long term earning strategy or retirement plan. Complacency is an attitude that is widely blamed for causing debt escalation. An individual with this mentality believes he or she is already in debt so spending a little more wouldn’t make any big difference. Although the habit may keep you going for a few months, it may cause serious problems down the line such as increased charge offs, bankruptcy and foreclosure. The first step of getting out of debt is accepting you have a problem that needs urgent intervention. According to AARP, here are 6 ways to turn the corner when you are in debt:
Getting out of debt quickly and responsibly
1. Use savings to pay down large debts
It is safe to use part of your savings to pay the initial credit down payment, assuming your savings are at a level to justify this expense. This decision can go a long way to curtail the accruing interest normally associated with high interest debt. You will also get the money sitting idle in the bank to work for you.
2. Use your tax refund to pay debt
Instead of splurging your tax funds to satisfy short-term desires like going on a vacation or buying high value items, you could use the check to clear some of the crippling debts. Paying debts in a lump sum will ease your debt burden and make it easier to clear the remaining debt moving forward.
3. Increase your debt repayment percentages
If you are serious about offsetting your debt, consider setting aside about 15% of your paycheck or social security benefits on loan and credit card debt repayment. Making slightly larger repayments will help you offset the accruing interest and clear the debts quicker. Most credit card issuers usually request around 2% monthly debt repayment on the existing balance.
4. Learn to negotiate lower interest rates
This is a popular strategy for lessening the debt burden. Once you have negotiated for a lower interest rate, you need to strictly adhere to the agreed terms of repayments in order to maintain a good standing with your creditors. This will place you in the good books and earn you better terms of credit in the future.
5. Find ways to earn more
As you work on paying off your debt, you should consider new strategies to increase your income and clear debt in the shortest time possible. Some of the ways to do this include negotiating a pay raise with your employer and looking for a part time position or a side gig to boost earnings.
6. Use Statute of Limitation to your advantage
If you have old, charged off debts and debts you are not obligated to pay, you can use the Statute of Limitation to clear your credit history. Old debts will feature on your credit history for seven years or thereabout and will certainly limit your chances of getting credit or favorable loan terms in the future. Some states have set limits on the types of debts that debt collectors can pursue and the legal means they can use to pursue such debts. A debt expert like those at Graylock Advisors can help clarify the matter.
How a professional debt expert can help
If you are in a bind and do not know what to do about your debts, you need to get in touch with a local debt expert. Debt management entities like Graylock Advisors offer an array of services, including debt consolidation and low interest rate debt consolidation loans to help clients stay debt free. Graylock Advisors will help consolidate your debt into one, low interest payment.