31 Aug

Strategies to Manage Debt

Strategies to Manage Debt

Strategies to Manage Debt

Americans are piling up debt as they deal with a higher cost of living. The New York Federal Reserve says US households added $100 billion in credit card debt alone over the past year. That’s the largest jump in more than two decades.

Repaying your debt can often feel challenging. That’s why making a plan to manage your payments and balances can help. Navigator Credit Union has some strategies and tips that can make managing your debt easier.

There are several strategies to help you get back in control if you’ve found yourself falling behind on your payments or want to pay off your debts faster.

  • Snowball Method: With this method, you start small and work your way up. Begin by paying off your smallest debt first. Then, take the amount you were paying for that debt and pay it toward the next smallest debt, and so on until everything is paid off.
  • Avalanche Method: Just like an avalanche, you knock out the big things first and then work your way down. Focus on paying off your highest interest rate first, then roll those funds into the next highest, and then the next.
  • Consolidation: Debt consolidation allows you to combine all of your debts into one payment. There are two ways you can consolidate your debts. You can transfer your credit card balances to one credit card, ideally one with a lower interest rate. By doing so, you’ll be paying less on interest and more on the principal. With the Navigator Platinum Rewards card, there are no balance transfer fees and interest rates are as low as 10.9% APR. Learn more at navigatorcu.org/your-card. Another option is to take out a personal loan and use it to pay off your debts. At Navigator, personal loans are available in amounts from $500 up to $20,000 and feature great low rates, flexible terms and fast processing.

Tips to Get Out of Debt
There are also other adjustments you can make to your approach to debt and daily spending habits that can make a large impact.

  • Reduce Expenses: The simplest thing you can do is stop spending on anything that isn't essential. Since debt doesn't go away by itself, the faster you stop adding to the problem the better.
  • Pay More Than Your Minimum Balance: Adding even just a little bit of extra money to your monthly payment can help you pay off your debt sooner and pay less overall.
  • Negotiate With Your Creditors: If you can’t afford the minimum payments, you can ask creditors to rewrite the terms of your credit agreements. This often means making smaller payments over a longer period, which does mean you'll end up paying more interest and therefore increasing the overall cost of resolving debt. But that's usually a better solution in the long run than having to default or declare bankruptcy.

Tapping Other Resources
If you've been contributing to a retirement savings plan at work, you may decide to tap into this resource instead of falling behind in payments. Borrowing from your retirement funds to solve debt problems should only be done after careful consideration. After all, you'll still need income from your savings down the road. Withdrawing from your retirement funds, rather than borrowing from them, will incur penalties, so be wary.

If you own your home, a Home Equity Line of Credit (HELOC) could be a good tool for consolidating debt. With a HELOC, you’re using the equity of your home to open up a line of credit you can use as needed. You don’t have to withdraw the full amount at once and you only need to pay interest on the funds you need.

Emergency Funds

One of the smartest things you can do when things are going well is to establish an emergency fund as part of your savings plan. Start with any amount you can afford to set aside, with a goal of saving enough money to cover at least three to six months of living expenses. That way, if an unforeseen event puts a drain on your finances, you'll have some backup funds to help see you through.

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