As the new year is less than a month away, you might be thinking of how you can go about debt payments post-pandemic. For a lot of people including yourself, you could have racked up some serious debt over the past few months because of the health crisis. Many companies were forced to scale down and you might have been affected.
Some companies had to put some of their employees on furlough and others were let go. This was done to try and save the business from going under. But as the economy is slowly starting to pick up, you could already be back in the office. It is also possible that you have found a new job when you left the old one you had during the pandemic.
As things start to slowly pick-up, debt payments post-pandemic now becomes a topic you at the back of your mind. The last few months were financially challenging that you might have taken on more debt than you can manage. Your cards could be maxed out, your savings are at an all-time low, and you might even have some high-interest loans you had to take out.
As the new year approaches, it gives you the sense of a fresh new start. For some people, it is the time to leave all the negativity of the past year behind. Of course, you need to also look at it and learn from all of them. In doing so, you can prepare better for the coming year. If your goal is to strengthen your finances and manage your debt situation, here are a few things to consider.
Go over your household budget
When debt payments post-pandemic is your goal, you need to seriously look over your household budget. This is one of the most crucial financial tools you will ever need if you want to improve your finances. It can also help keep you on a straight path as you work towards your goals. Your budget can also help you make informed financial decisions.
With all that, debt management starts with your budget. It needs to be as comprehensive as possible to give you a clear picture of where you are at present. Your household budget will let you know how much income is coming in every single month. More importantly, it should also give you a complete rundown of financial obligations.
When putting a budget together, do not be swayed by complex and long formulas and tables. The simpler your budget is, the better you can understand it. Of course, you can improve on it as time goes by. But you do not have to start with a complicated process. A simple list of your income on one side and expenses on another is already a good start.
Create a separate list for your debt payments
Debt payments post-pandemic means you have to focus on your debt obligations so it helps to have a more comprehensive list. This means that you do not only list down the amount you have to pay. You also need to put in a lot more details like the interest rate, your expected pay-off date, and even your lender’s contact details. New York Fed shares that the average household debt in the middle of the year stands at $14.27 trillion.
Having all these at your fingertips will help you make better-informed decisions when it comes to paying them back. You can list them down from the biggest balance going down the smallest debt amount. If you are concerned with the interest rate, list them down with the account carrying the highest rate first. This allows you to have an overview of what your payments are.
Choose a repayment plan that works for you
Once you have that list, debt payments post-pandemic can be a little easier to navigate through especially if you have a repayment plan in mind. If you want to pay off the accounts with the highest interest rate first, then use that list. This strategy helps you save money in the long run. It’s because you spend less on interest payments when you pay these debts quickly.
Another strategy is paying down the smallest balance first. This gives you small wins you can carry with you as you move forward. One of the best repayment strategies you can look into is debt consolidation. This is where you combine and put together most, if not all your debt payments under one account. In doing so, you have an easier time managing your payments.
There are also instances where you get to save money when you consolidate your debts. One is if your credit score has significantly improved. Lenders can give you a lower interest rate which can bring your monthly payments down. If you spread the payment over a longer period of time, monthly payments could dip. But keep in mind that the total comes out higher at the end.
Diversify income sources
When you start talking about debt payments post-pandemic, income sources will soon be part of the discussion. This is because your ability to pay back your debts relies mostly on what your income is at the end of each month. This is a big part of how fast or slow you can make payments and cross out debt accounts under your name.
But earning money during the health crisis was a challenge for a lot of people. This is one of the reasons why a lot of people were forced to take on side gigs just to stay afloat. But it is also good to point out that more than 57 million Americans took freelancing jobs last year even before the pandemic according to Forbes. If you think about it, this is one way of helping you diversify your income. Your old company might have hired you back or you could have found another steady job but you can still keep your side hustle.
This is true especially if you are earning through income-positive hobbies. It also feels good to be doing something you love doing and getting paid for it. If you have a talent for creating digital art, you can offer your services to family and friends, and even businesses in your area. If baking is what inspires you, bake, and sell you create online.
Do not take on more debt
If debt payments post-pandemic is your top concern, it is a good idea to try and stay away from taking on more debt. If you continuously add more debt while paying off old ones, you will never get out of this vicious cycle. You will be in a repayment loop for all your life. This one sounds easy but it takes a lot of self-discipline especially if you have an impulsive buying behavior.
One thing that could work is to try and leave your credit cards at home if you are trying to pay them off. This lowers the chance of using them when you find a sale in the mall. Try deleting your credit card detail online as well. If you do not have them saved up in your gadgets, it makes it a little more difficult to shop online.
Debt payments post-pandemic is an excellent target to aim for and it can help put you on the right track in reaching your goals. The lower your debt obligations are, the more you can set aside and save for you and your family’s future needs.