14 Ways to Manage Debt

Being in debt can feel overwhelming. You are not alone. As Americans still recover from the financial impacts of the COVID-19 pandemic and record inflation, many have fallen behind on credit card payments and loans.

Anyone can learn to manage their expenses and debt. It's essential to have a plan in place. Following a few simple rules, you can get your finances in order and pay down your debt. Below, you'll find ways to reduce expenses, avoid financial pitfalls, and stay out of debt.

1. Make a Budget

Develop a realistic budget you can stick with. A budget will help you see your financial situation clearly. Lay out your monthly income and living expenses. Certain expenses, such as rent or mortgage payments, car payments and insurance, health insurance, and student loans, are consistent. Other amounts change, like utilities, medical deductibles, and credit card payments.

Review your budget every month and revise it when necessary. Track your spending habits. A budget will help you see where to make cuts or save money. Make small changes each month and adjust your budget as needed.

Try not to consider sticking to a budget a negative. Make a game of staying within your budget, or give yourself little rewards for meeting your goals.

There are many easy ways to develop a budgeting system, such as spreadsheets, online software, and financial apps. These programs will help you determine how much you are spending and saving.

2. Avoid Impulse Buys

Curb your impulse buying. Impulse buys contribute to overspending and can add to your credit card debt.

If you see something that you want to buy, don't buy it right away. Go home and sleep on it. If you do this, you probably won't return to the store to make the purchase. Ask yourself: Is this a need or a want? If it's a "want," you can live without the item for now.

It may help to avoid carrying your credit cards, especially those you're trying to pay down. You can limit impulse buying.

3. Learn How To Manage Debt

If you have multiple balances to pay off, you must develop a plan to manage your debt effectively. Get a copy of your credit report to get a bigger picture of your financial health. Dispute any errors you find.

Consider attending a personal financial management course to learn how to manage your debt. Approved debtor education courses can teach you how to become and stay financially secure.

Some of the things you might do to help manage your debt include:

• Talking to your creditors to negotiate better rates
• Arrange payment plans with creditor or debt collection agencies
• Consider loan consolidation
• Consult a nonprofit credit counseling agency
• Explore bankruptcy options

4. Limit and Eliminate Credit Card Debt

Limit your new debt while working on paying down your current obligations. Avoid opening new credit cards or taking on new loans that aren't necessary.

There are several ways to pay off credit card debt. Lay out your credit card balances with interest rates and monthly payments. One method is to pay off your highest interest rate cards first. Pay as much as you reasonably can afford on this card while making the minimum due on your other cards. Cut up that card or put it away so you can't use it while paying it off. Once you pay off that card, move to the next on your list.

Another method is to pay off the credit card with the smallest balance first. Then, move up your list. Paying off a smaller balance is often faster. The accomplishment is motivating and satisfying.

You can also look into debt consolidation loans or credit cards with lower interest rates. Transferring your debt to a lower interest rate can help you pay down that debt faster and save you money.

5. Control Monthly Expenses at Home

Cancel unnecessary services and subscriptions. Cutting down on monthly expenses can save you a great deal of money. Some bills may seem insignificant by themselves, but when you look at the cumulative cost, it can be enormous. Consider cutting back on recurring money drains such as:

• Cut out streaming services you don't use (Netflix, Hulu, Prime, Disney+, etc.)
• Cancel or cut back your cable plan
• Conserve more energy at home to lower utilities
• Reduce your cellphone plan
• Consult your lender about mortgage refinancing for a lower payment
• Cancel memberships you don't need, like the gym, wine clubs, or monthly subscription boxes

Also, check your credit card and bank accounts to see if you are paying any unexpected recurring bills. These simple cutbacks can help you increase your savings.

6. Build Your Savings

It's important to have an emergency fund. Unexpected expenses can come at any time. While having a credit card can help if you need it, being able to pay for those expenses without incurring interest payments can save you in the long run.

7. Pay Off Credit Cards In Full

Charge only those items you can pay off in full when you get your credit card bill. Don't get into the habit of maxing out your credit cards and paying the minimum. This habit means you're continually spending more money than you have and collecting more debt due to high credit card interest rates. Paying off a charge within the first month and on time eliminates interest charges.

8. Keep Your Housing Payments Reasonable

Don't saddle yourself with large housing costs. Only take on obligations that you can easily afford now. Housing payments should be either one-fourth or one-third of your monthly income. For example, if you take home $3,000 a month, a rent or mortgage payment of $1,000 or less will allow you to save comfortably.

If you are struggling with your mortgage payment, talk to your bank. Refinancing options may lower your expenses.

9. Develop Alternatives To Spending Money

Make it a hobby to develop alternatives to spending a lot of money. Instead of dining out, go for a walk and have a picnic. Borrow books at the library instead of buying them. Try to take advantage of promotions going on in your city. For example, many towns have a day where museums are free or even half off or host free events.

10. Invest Wisely

If you can afford to invest, choose wisely. Investing some of your money can help grow your funds, but it's not quick. Research the various types of investments available to choose the right one for you.

Avoid investments that promise a high return, like penny stocks, junk bonds, and speculative deals. These investments offer a high return because they are extremely risky. Avoid investing money you can't afford to lose.

11. Don't Cosign for Another Person

Don't cosign or guarantee an obligation to someone else. If that person doesn't pay, you will be responsible for repayment. This debt will also appear on your credit report and affect your credit score. Delinquency can seriously affect your credit.

12. Have Enough Home and Car Insurance

Ensure you have adequate insurance on your home, its contents, and your automobiles. You can have significant bills without proper insurance. For example, a major car accident without adequate insurance can saddle you with the cost of repairs and damages out of pocket.

Driving without auto insurance is illegal. You can face huge fines, driver's license suspension, and a criminal charge, especially if you cause an accident

13. Have Adequate Health Insurance

Be sure to have adequate health insurance coverage at all times. Medical bills can pile up and be in the thousands of dollars. It's best to have health insurance to protect yourself from expensive and unexpected health bills.

If you don't have insurance through your job, you can qualify for health insurance plans directly with an insurance company through the Health Insurance Marketplace.

14. Consider Bankruptcy

You may consider filing bankruptcy if you are in legal trouble because of debt you can't pay. If you qualify, bankruptcy can offer you a fresh start.

Types of bankruptcy for individuals:

Chapter 7 bankruptcy: Most people file Chapter 7, which discharges credit cards and medical debt. But, Chapter 7 bankruptcy will not discharge child support, alimony, student loans, unpaid taxes, or criminal or civil fines. You must sell assets other than exempt property, like personal property and a vehicle. Assets include investments, heirlooms, collectibles, and second homes. Depending on the extent of your homestead exemption, the bankruptcy court may force the sale of your primary home. The money generated goes to pay down your unsecured debts. To qualify for this bankruptcy filing, you must pass a means test, which evaluates the extent of your income and debts.

Chapter 13 bankruptcy: If the bankruptcy court rejects your Chapter 7 bankruptcy petition, Chapter 13 is an alternative. People file Chapter 13 petitions without first attempting a Chapter 7 petition. Chapter 13 bankruptcy sets up a workable repayment plan for your debt. You can keep your personal property and make payments over three to five years. You make one payment, which then gets applied to your debt. You can keep your home but must pay your mortgage on time during your repayment plan. The bankruptcy court will discharge your remaining debt if you complete your repayment plan.

Next Steps for Your Financial Health

Managing your debt is important. These steps can help, but if you're overwhelmed, you need professional guidance. Consider visiting a nonprofit credit counseling agency.

While bankruptcy offers debt relief, it will stay on your credit report for seven to 10 years, making it difficult to get new loans, mortgages, or credit cards. You can file for bankruptcy alone, but having a bankruptcy lawyer helps a lot. The Bankruptcy Code can change during legislative sessions, and navigating the law is a challenge.

If you think bankruptcy is your best option, talk to a bankruptcy attorney first to consider your next move. An attorney with experience in bankruptcy law can look at your situation and offer valuable advice.