Monthly budget planning
According to Valerie Rivera, a certified financial planner and founder of FirstGen Wealth in Chicago, the key to getting out of debt is to face your problem first, MarketWatch reports. You should also try to understand how you got into this situation. The causes can be very different. As already mentioned, one’s own consumer behavior can play a role, but also personal circumstances such as illness or an accident.
If you are aware of your problem and maybe even know the cause of it, it is important to create a spending plan that leaves room for debt repayment. Financial planner Rivera tries to go through credit card statements with her customers, categorize purchases and look for spending patterns to create a budget plan. If you can make a few adjustments to your spending and pay off higher monthly installments as a result, you’ll be debt-free much faster and pay significantly less interest.
Bigger changes
Using a spending plan to ensure that you have more money free to use to pay off your debt is a first step. According to the financial planner, however, it is sometimes necessary to make major changes. In some cases it makes sense to temporarily limit contributions to pension accounts, for example if the debit interest on the credit card exceeds the return on the contributions to the pension account when the credit line is used. According to Rivera, other options include drastic lifestyle changes, such as a part-time job to generate more income or a roommate that can lower the cost of living.
reduce interest rates
The measures mentioned can also be combined with a reduction in the interest rate. As MarketWatch reports, those affected can, for example, contact the credit card company and check whether they are entitled to a lower interest rate. In addition, it is sometimes possible to shift the debt from one card to another, for example where no interest is charged initially. So you can try to use a plan to pay off your debts during this time before interest becomes due again and thus save paying them. Purchases, meanwhile, should be paid for with cash or debit cards to avoid adding to the debt.
Another possibility can also be a loan consolidation, in which several existing loans are combined into one, which means that the borrower only has to serve one creditor. This gives you a better overview of your finances and you can save money by rescheduling a loan – if the interest rate on the new loan is lower than that on the old one.
It can also make sense to seek professional help from debt counseling. Experts can provide assistance with debt inventory, budget planning and next steps.
Editorial office finanzen.net
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