Being in debt is no fun, but it’s not the end of your life, either. Many people who have been in deep debt have managed to climb out and regain control of their financial lives. Sometimes, all you need is the right strategy to get started.
Your first step is to refrain from panicking. Working to put things in order will require taking a moment to breathe and approaching the books calmly and rationally.
Here are five smart strategies for managing your debt and getting you back on a firm financial footing:
1. Assess your personal economy – Know what you have in your savings and checking accounts. Check the value of insurance policies, jewelry, other valuable possessions and retirement plans. You may be able to sell a portion of an annuity, for example, to get cash in hand and repay debts.
Now determine what you owe in short- and long-term debt, and then separate your secured obligations (house, car, etc.) from those that are unsecured (credit cards). This will allow you to have a firm grasp on precisely what you have and what you owe.
2. Prioritize your debts — Begin by tackling the bills that will keep you in your home with the lights on. Pay your mortgage or rent and the utilities. Then identify which debts are so overdue that there is a likelihood they will be sent to a collection agency. Pay them, or at least a portion of them, as best you can.
Manage your credit card accounts next, and pay the minimum monthly amount owed. Avoid paying more late fees and facing increased interest rates as a result of skipping more payments.
3. Contact your creditors — You can’t hide from them, but you can communicate your current situation. See if you can negotiate some sort of deferment, or reduced payment plan on credit cards, car loans, department store accounts, etc. If you have a federal student loan, contact your loan servicer and inquire about alternative payment plans. If necessary, you can arrange for a deferment or forbearance due to financial hardship.
4. Create a realistic budget — Cut down on any discretionary expenses. Limit your purchases to the bare minimum, and communicate the changes with the whole family. It will be easier to maintain these cutbacks if you stop using your credit cards for purchases and pay with cash whenever possible.
5. Consult a debt relief expert — If your debt is truly unmanageable, you may need to discuss your situation with a qualified debt relief company with experience and expertise in debt settlement or debt consolidation. A realistic debt management plan can help you reduce the amount of principal you owe or arrange for lower interest rates and the waiving of late fees and penalties.
Whatever plan you make to manage your debt, stick to it. There is no magic bullet or easy way out of a debt crisis. Stay determined and vigilant, knowing that you can have a debt-free future.
Alanna Ritchie is a content writer for Debt.org, where she writes about personal finance and little smart ways to spend (and save) money. Alanna has an English degree from Rollins College.