If you are looking for debt repayment ideas to help you manage your mounting debt obligations, you are not alone. A lot of Americans are now looking at statements filled with huge payment notices. For one, many skipped payments on loans since the coronavirus hit the US according to an article shared by Wall Street Journal.
The pandemic is a very challenging time for the world because it affected several areas of society. As it is a health crisis, it quickly filled up and overwhelmed the healthcare facilities in several states in the country. Beds and rooms were are full occupancy and frontline workers were donning PPEs for hours at a time just to stay protected from the virus.
The spread of COVID19 also forced business closures as the stay at home orders were given down by governors. This was also meant to slow down the virus and give hospitals ample time to take care of the sick. But as people were asked to stay at home with some being let go from work, bills started to pile up. This meant looking into debt repayment ideas to manage payments.
Debt is a big part of American culture for a number of reasons. One explanation for this is that discretionary spending is linked to credit card debt according to a CNBC survey. As more and more people are forced to stay at home with reduced sources of income, there are a few ways you look into to help you manage your repayments.
Pay them off if you can
When you start talking about debt repayment ideas, the first and easiest option is to simply pay off your balance in full. When it comes to your credit cards, this is the preferred payment method every month. You need to pay your statement in full every month. This forces you to use only what you can pay off and keeps you away from paying high interest on minimum payments. But the health crisis might have forced you to do it a little differently.
If you have the money to pay for your statement in full, paying it in full is sure a good way to manage your payments. But you need to carefully assess your situation because you might need to be liquid with your finances. Times are uncertain and you need to have that financial cushion at any given time. Before you pay your statement in full, make sure you have enough left for emergencies.
One scenario is that you simply do not have the funds to pay for the whole amount. This is where the minimum payment comes in. You can choose to pay just a fraction of what you owe and still stay current. It would cost you a bit more with a few charges on your account. But this is better than not paying at all. You risk damaging your credit score and paying a higher amount because of fees and charges on your account. Not to mention getting collection calls if you leave it unpaid over a long period of time.
Talk to your lenders
Consumer Finance shares that several credit card lenders now offer various financial relief options for borrowers affected by the pandemic. They are trying to help borrowers manage their card payments better. With this initiative, you seriously need to look into these programs as part of your debt repayment ideas during this pandemic.
There are some lenders who are finding ways to lower or even defer monthly minimum payments. This is a big relief if you have your back up against a wall with all your payments. There are also lenders who try to help with late fees. They are either waiving or outright refunding these fees back to their loyal card customers.
At a time like this, some card issuers are taking the initiative in reducing interest rates before their customers even ask for it. You have to understand that the interest rate is based on the risk lenders are taking wherever they issue cards to consumers. For them to lower it down at a time like this means they are taking in a lot of risks just to try and help people out with their card payments.
One of the debt repayment ideas people are looking into is debt consolidation. As the name suggests, you put your card payments under one account. The immediate benefit this brings you is decluttering and being able to focus on one account. It lowers the chance of overlooking the payment and being left to deal with the late fees and charges.
Debt consolidation can also help you lower down your payment every month. One way to do this is to consolidate using a 0% card. But be mindful that these cards come with a limited time period. Once that lapses, you could go back to regular interest rates. Choosing to pay over a longer period of time can also reduce the amount you pay every month. You might end up paying more at the end but it can make your monthly budget more manageable.
Avalanche Method or Snowball Method
When you start talking about debt repayment ideas, you might hear about the avalanche and snowball method used by people. This basically puts focus on either paying down the item with the highest interest rate or prioritizing the account with the smallest balance. Each has its own benefit and it depends on what works for you.
The Avalanche method is focused on paying down the high-interest first in order to help save money in the long run. The Snowball method pushes you to pay the accounts with the smallest balance first. This gives you mental wins that can give you that nudge to pay off the next one and one after that. It can motivate you to move and pay down your debt obligations until you pay off all of them. Whatever method you choose is totally up to you.
How to avoid getting back in debt
Now that you have looked into debt repayment ideas, you need to put a system in place so you do not slide back into debt. Here are a few things to consider.
Create and stick to your budget
Your household budget will play a crucial part in staying off debt. Especially now that finances are tight, you will need to be on top of your income and expenses. One thing to remember when it comes to budgeting is that the simpler it is, the easier it would be to follow it. Remember that it is one thing to create a budget and a totally different matter in trying to follow it.
Prioritize your expenses
Once you have a budget, you need to prioritize your expenses from the most to the least important. You might even have to take out a few things just to be able to cover all your expenses. It might also be a case of choosing to save some funds towards your emergency fund just in case this pandemic drags out even further. The goal is to create a lean budget with your expenses as few as possible.
Look for a side hustle
This is a topic a lot of people are currently looking into. As more and more people are applying for unemployment benefits due to company closures, there are still industries that are hiring. There are even opportunities for online work you can look into. It would even be better if you can turn your hobbies into income-positive ventures. You can get online work for writing, website creation, or even graphic design. You can look at all these options and more and start earning extra money.
There are a number of debt repayment ideas you can look into to help you manage your finances during this pandemic. Once you do, know that you also have to be mindful of how you spend the funds that will open to help you strengthen your financial position.