2020 was nothing short of an economic debacle, leaving millions of people unemployed and thousands of families behind on rent, according to a recent report by the Bureau of Labor Statistics. The financial effects for some, particularly those who were already on shaky financial footing before COVID hit, are expected to be even greater. If you are entering 2021 with debt, here are seven steps to help you get rid of them:
Get a Complete Picture of Your Finances
Secure your most recent account statements for all credit/debit cards, savings/checking accounts, and car or home loans. You should also request a copy of your credit report, so you can check for any inaccuracies and errors that might be affecting your credit score and, consequently, the interest rates on your loan/s.
Refine Your Dataset
Next, you’ll want to make a list of all your outstanding debt as well as your take-home pay. You can organize the data in a spreadsheet with relevant tabs, including the creditor’s name, outstanding balance, minimum monthly payment, interest rate, and any additional charges you may be paying. Afterward, determine how many monthly payments you’ll need to make to clear the balance within your target timeframe.
Renegotiate Your Loan Rates
Interest charges on your active credit cards and loans can make the process of fully repaying your debt seemingly more excruciating. The more money that you owe, the more interest you have to pay every month. For instance, if you owe $3,000 with a 30% interest rate and pay $100 a month, $30 of that amount pays for the interest, and only $70 goes to repaying the actual balance that you currently owe. Call back your credit card company and lender/s to try and renegotiate a lower interest rate.
Increase Your Earnings
It’s perhaps the simplest way to pay off more debt over time. Making more money means ending up with more savings after you’ve paid off all other monthly expenses. This bump in earnings can come from a temporary side gig, such as dog walking or Uber driving, or starting a side business, like a consulting firm or web design agency. Another way to increase your earnings is to be a more active investor. Maximize your retirement account contributions and add more money to your investment accounts. Merely keeping your funds in a savings account to grow a measly one percent per annum won’t do much to help you repay debt.
Reduce Your Expenses
Another no-brainer tip to get out of debt in 2021 is to reduce your monthly expenses. This measure can be done either as a supplement to increasing your earnings or as an alternative, depending on how much debt and time you are working with. Reducing your expenses can be done in different ways, from eating out less frequently to skipping cafe-bought coffee and buying your coffee maker or instant coffee instead.
Consider Professional Debt Management Solutions
Professional debt relief services are available to people who are having a hard time paying off their debt and other bills. A credit counseling agency can help you draw up the best course of action to repay your debt within the shortest time possible. Other options you have access to include debt consolidation, debt settlement, and bankruptcy. Keep in mind that all of these options have their unique pros and cons, so make sure to consider your options carefully.
Have an Emergency Fund to Fall Back On
An emergency fund can help you avoid any more debt options in the unfortunate yet inevitable event of an emergency, whether it’s a hospital bill or a tuition fee increase. Experts recommend that an emergency fund be enough to cover your expenses for up to six months if needed. If that amount is unattainable given your current financial conditions, you can start with one month’s worth and then slowly grow the fund over time.
Debt can act as your proverbial ball and chain that restricts you from making better choices in life. If left unresolved, debt can spiral out of control and lead to even worse financial conditions. Use the tips above to realign your everyday actions with your future financial goals.
