If you’re looking for ways to reduce debt while enduring the pandemic, so are many others like you. Debt is a challenge, and more so when you are going through tough financial times. During such times, what you earn is hardly enough to satisfy your daily needs. If your income is not enough to meet your most basic requirements, then meeting your debt obligations becomes even more challenging.
In your efforts to settle your debt, you must never forget to plan. Failing to plan exposes you to the inevitable effect of putting your long term financial security at risk.
This is particularly important for those people who are trying to get rid of debt. Only wise debt management will help you settle your debt and become debt free again.
Consider the Different Ways to Reduce Debt
There’s no single way to solve a problem.
Debt Management Plan
The first step in the journey of managing your debt is to establish a realistic debt management plan. The debt management plan should become effective the moment you start taking on debt.
As part of your debt management plan, consider the following items:
Liquidity is useful because it could assist you to pay the upfront costs and points for refinancing.
Interest rate risk is another critical factor that you should consider. Take time to evaluate the amount of interest risk exposure that your balance sheet could carry.
When tackling debt, some experts recommend paying off the debt with the highest interest rate. This method is the avalanche method.
Ratio of Debt to Other Expenses
In most cases, debt is serviced on a monthly basis, making it a recurring expense. Remember your other monthly expenses. The secret to effective debt management is to try and reduce the other expenses relative to your debt.
Any successful debt management plan must surpass the basic efforts of trying to hunt for the best interest rates.
One of the best ways to reduce debt is credit counselling. If you struggle with this type of debt, speak to a credit counsellor. He or she can tell you establishing debt payments above the minimum payments is essential. Use any extra money you come across toward the bill until the debt is paid in full. Doing so can help you relinquish debt quickly.
Credit counselling provides a more holistic approach to debt management. For example, you can receive tips on budgeting and learning better habits. It can often help identify behaviours that you exhibit when dealing with spending. Changing your mindset and behaviour is essential to making an impact on your debt reduction efforts.
There are different ways to consolidate your debt. The most common ways include:
- Personal loans from friends and family
- Unsecured loans from a bank or credit union
Of course, the benefits include one monthly payment and often lower interest rates. Naturally, lower interest rates can help you pay the debt faster. If you’re serious about debt repayment, a consolidation loan can be your best option.
Balance Transfer Cards
If you cannot come up with the money to pay extra over the minimum payments, consider a balance transfer card.
In essence, you transfer the balance from one existing credit card to a new card. The goals include:
- Achieving a 0% introductory rate
- Avoiding additional or hidden fees
- Paying off the entire balance
Be careful, though. This tactic only works if you can pay down all of your debt before the introductory rate shoots up. If this happens, the efforts you took may cost you more than before.
Negotiate Lower Interest Rates
We have a guide outlining the different methods you can take to get lower interest rates on the debts you have.
Get Government Assistance
The Coronavirus continues to affect citizens months into the pandemic. There are many government programs in place to assist:
- People who are dealing with unemployment
- The destitute
We recommend reading our online debt guide for more useful tips. You may also want to consider getting help from a debt specialist. What works for one person might not be the right option for another person. Receive a free debt consultation today!
Related to: Ways to Reduce Debt During Tough Times
- COVID-19 Mortgage Deferral
- How to Prepare for a Financial Crisis
- Credit Card Payment Deferrals in Covid-19