Managing your bills can be very stressful. Some studies have shown that carrying some debt may be bad for your emotional well-being, so it is important to try and take the problem on as soon as possible. In order to relieve the stress, you need to think about the debts that you have. What debts go to necessities? How will your interest rates be affected by the payments you make? Can you consolidate?
Deciding Between Urgent and Non-Urgent Debt
Here is one way to tell the difference between urgent and non-urgent debt:
-Basic housing needs like mortgage or electricity
-Loans where household goods are used as collateral
Once you have figured out which bills should be given the most priority, you can decide how much of your funds to put towards each one. Any money you have left after making your minimum payments can be used to get the balances owed lower.
Deciding Between Interest Rates and Balances
It’s always a wise idea to pay off the balances with the highest amount of interest first. If you don’t follow this rule, you may end up paying thousands of dollars in interest. Some people try other strategies such as:
-Boosting morale by paying off lower balances first.
-Lowering your highest balances first. This could lower your minimum payments, making debts more manageable.
-Decide based on other factors, such as which will help you pay off debt the fastest.
How to Consolidate Your Debt
Those with multiple debts may want to consider consolidation so that they only need to make a single payment each month. There are several ways to achieve this, such as:
-Home Equity Loans – Your house is used as collateral, which causes rates to be lower and gives you more spending power. The interest paid can also become tax deductible. The only downside is that your home could be on the line if you skip a payment.
-Credit Cards – If you have several different credit cards, transferring all of the balances to a single bill may help you. This helps to make it one payment and could give you a lower rate; however, you need good credit in order to get this option.
-Retirement Fund – You may be able to borrow from your 401(k) or other funds at a low interest rate; however, you are expected to pay the money back in a short time. Otherwise, you may be taxed. The money you borrow also isn’t earning a return, which can result in a loss of future income when you retire.
-Personal Loans – These loans can be a quick way to consolidate your debt until you find a better interest rate; however, the rate will be based on your existing credit.
Consolidation can be difficult as you need to borrow money in order to pay off the debt, which may mean reassessing your budget.
Get Debt Help
Learn more ways to reduce your debt and get the assistance you need by contacting a local credit union today.