Top Tips for Overcoming Debt

When you have a lot of debt or are juggling multiple sources of debt, paying it all off can seem like an enormous undertaking. Feeling overwhelmed is a completely normal response – but it is crucial to not let emotions get in the way of action.

Achieving freedom from debt is possible. We’re here to help you figure out how.

Step One: Take a Deep Breath

Finances can be stressful, but keeping a clear head will make it that much easier to take stock of your situation and come up with a plan. Set aside some free time assess your debts at your own pace.

Don’t be afraid to pull in a trusted friend or family member to encourage you and help you keep your emotions in check! Opening up about your debts to a loved one may be difficult at first, but talking about them is a reliable way to calm your thoughts – and you’ll have someone to help celebrate your victories too. As the old Swedish proverb says: “A joy shared is a joy doubled; a sorrow shared is a sorrow halved.”

Step Two: Calculate Your Current Debt

You won’t know where to start whittling down your debt if you don’t know where you stand. Gather the most recent statements for all your credit cards and loans, plus any other types of debt such as medical bills, and write down:

- The current balance on each debt

- Each debt’s interest rate

- The remaining term or number of payments

Once you have your debts all together, you can calculate how much you should be paying each month in minimum payments.

You may also want to pull together your monthly income and other expenses. Then, you can compare them to your debt costs for a broad picture of your finances.

Step Three: Set a Goal for the Year

Keep it realistic and attainable, but not so easy that it doesn’t actually help. Maybe you want to prioritize your credit card debt and reduce it by 50% by the end of the year. Or maybe you want to pay off a smaller loan within a few months.

Putting your goals into words doesn’t just give you a concrete target that helps you crunch numbers. It’s also a nifty psychological trick that makes those goals feel more achievable – which in turn gives you more motivation to work towards paying off your debt.

Step Four: Create a Debt Payment Strategy

Your strategy will likely depend on how much debt you have.

If your debt costs are nearly half or more of your monthly income, or your debt isn’t decreasing despite all your payments, you may need to take further action. Refinancing higher-rate loans and credit cards could make payments more manageable. Otherwise, you may need to make some phone calls to negotiate more affordable payment plans.

If your debt costs are a bit lower than that, though, there are several strategies you can try on your own! Here are a few:

Debt snowball method: Start focusing on your smallest balance first and try to put extra money toward it each month. (Don’t forget to keep making minimum payments on your other balances!) Once that’s paid off, roll that monthly payment into the next smallest balance. This strategy’s early victories can help keep you motivated.

Debt avalanche method: Focus on paying off your highest interest debt first while maintaining your minimum payments on the rest. Once that’s paid off, move on to the next highest. This method might take longer to see results, but it focuses on slowing the growth of your debt and making repayment easier as you go.

Lowering credit utilization: If you’re especially concerned about your credit score, try focusing first on credit cards that have the highest percentage of your available credit used. Your credit utilization plays a big part in your credit score, so by paying down your credit cards, you could also be helping your score improve.

Increase income: Simply put, if you can find ways to get more money, you can put that money towards your debt. Seems obvious, right? But it requires time and sacrifice – this might involve getting a second job, hosting a garage sale or getting crafty and opening an online store.

Debt consolidation: A debt consolidation loan or transferring credit card balances could make it more manageable by simplifying monthly payments or lowering interest rates. However, taking out a loan or new credit card could impact your credit score, and any associated fees or changes in loan term might mean it’s not worth it. Debt consolidation can help, but it still requires discipline and strategy to make it work.

As your credit union, we are here to help. If you’d like to talk about which debt repayment strategies could work for you, give us a call or stop by a branch. And always remember: you got this!

Sources:

https://www.hondafcu.org/tools-resources/calculators

https://hondafcu.enrich.org/budget

https://hondafcu.enrich.org/debt-to-income