The average credit card balance per household is at $8,701, according to WalletHub. Research showed that those between the ages of 18 and 35 are more likely to be behind with their payments. However, there are several reasons families are burdened with debts, and one of them is their penchant for buying brand new items all the time. If families can look beyond this habit, it is possible for them to reduce their debts significantly. There are other ways for you to manage your debts this year to keep them at a reasonable number.
List Down All Your Outstanding Debts
Most Americans are unaware of the extent of their debts until they see their credit card statements. Although many are familiar with how their auto and mortgage loans work, they seldom take their credit cards into account. If your credit report shows that your finances are in a bad state, consider applying for a bad credit loan.
This type of loan can be used to help pay off existing debts that may correct your credit standing. Keep in mind, however, that this is usually accompanied by a high interest rate. To have more control over your finances, it is necessary to list all your current debts and ask creditors your standing with them.
Know The Total Cost of Your Debt
Aside from listing all of your debts, determine how much you owe overall. Keep in mind that when you borrow money, you will also pay interest too. When the interest rate that you are paying is high, it will take a chunk out of your income just to pay it. If you choose a longer payment plan, although you are paying a small amount every month, at the end of the term you have spent more than is necessary.
Most people make the mistake of just budgeting their monthly payment rather than the total amount which is why many end up buried in debt. It would be better to get your debt to be able to budget your finances properly.
Pay The Minimum Amount Every Month
Borrowing means that you must pay your dues based on the terms you have agreed upon. Most sellers will require you to pay a minimum amount every month. If you could not do so, the seller can add a late fee. However, if your payment is delayed for more than a month, the creditor will report your delinquency to credit bureaus.
Unfortunately, this can affect your current credit rating. To manage your debts properly, it is best that you set a reminder when their due dates are. This will help you allocate your funds accordingly every month.
Ask For Help with Payments
If your current finances have taken a hit, and you know you won’t be able to make your payments on time, talking to your creditors may help. Most creditors can be asked for a different payment option based on your current financial standing, but this must be done as soon as possible. If your creditor approves of this new payment scheme, make sure you have it in writing.
Another possible area where you can get financial assistance is from companies that offer debt relief packages. However, before you use this service, make sure you are dealing with a legitimate company. This can be checked by going to the Better Business Bureau to know more about these companies.
Debt relief companies usually call up your creditors to discuss payment terms, but you can do this on your own. The downside here is that your credit rating will take a hit, but it’s better than filing for bankruptcy.
Find Ways To Reduce Interest Rates
Learning how to manage your debts will include learning how to reduce the interest rates as much as possible. Fortunately, there are ways that this can be done. For starters, you can apply for a personal loan that you can use to pay off larger debts. This will also mean that you only have to pay one loan instead of multiple bills at a time.
Refinancing is another option to lower the interest rates that you are paying, such as with a home or car loans. This can be done when the interest rates have fallen, which is the best time to apply for refinancing. With the new loan having better terms, you will be in a better position to pay off your debts on time.
Find Out Your Debt-To-Income Ratio
Another way for you to manage your debts is to know what your debt-to-income (DTI) ratio is. It is good that you are aware of your debts, but you also need to consider your income. If your debt is bigger than what you earn every month, it means that your loan applications will not be approved. On the other hand, if your DTI is at a good number and you are still unqualified, it means that you must either increase your income or reduce your debts as soon as possible.
Debts Can Affect Your Credit Score
Owning creditors a lot of money can impact your current credit rating. For example, if you have maxed out your credit cards, your credit score can go down. The rule of thumb here is to keep at least 30% of the maximum amount to maintain a good credit rating. However, if you stop using credit cards entirely, it will still have a negative effect on your credit standing.
This is because you will need to make a purchase that will be reflected on this statement and create a credit report. That being said, it is best that you learn how to juggle your finances to keep your credit score in good standing.
Managing debts can be tricky, but it is possible when you learn the steps above. Listing the debts you owe and comparing it to your income can give you a closer idea on where the problem lies. And if you find yourself in financial trouble, it is never too late to ask for assistance from reputable financial establishments to help you out.