The psychological effects of debt should not be underestimated. When money is tight and bills start piling up, many people begin carrying around guilt and blame themselves, even for things that are beyond their control.
That self-blame is often the first obstacle that needs to be overcome. Focusing on the reasons you got here distracts you from the ways you can get out.
What you need is a get-out-of-debt plan. There are several ways you can find financial help. This is one path that can help you find relief from overwhelming interest charges and get some breathing room in your budget.
#1 Financial Assessment
The first step in your get-out-of-debt plan should be a financial assessment with a Credit Counsellor from a non-profit credit counselling agency. One of the ways Credit Counsellors can help is by assessing your finances. Their assessment will include:
- Assets including your home or vehicle, registered savings accounts, and other properties or investments;
- Income from your after-tax pay to any benefits or passive income investments;
- Expenses like housing, transportation, groceries, utilities, etc.;
- Debts including credit card balances, as well as the interest charges you pay.
With this financial assessment, they can recommend a way forward, as well as provide tips for budgeting.
#2 Debt Consolidation Program
The next step is debt consolidation. If you want to avoid bankruptcy and still speed up the process, debt consolidation is an effective way to save money and become debt-free sooner. There’s also more than one way to do it.
The first option that comes to many consumers’ minds is a debt consolidation loan, but it may not be the best. They can be difficult to qualify for if you already have bad credit. Some suggest trying to improve your credit before applying, but that takes time and isn’t easy. You can also run into an issue where the loan has a higher interest rate than some of the loans being consolidated.
One alternative is a Debt Consolidation Program, where a Credit Counsellor from a non-profit credit counselling agency negotiates lower interest charges with creditors, or stops the interest altogether. They will also negotiate a single lower consolidated monthly payment that gets distributed to each of your creditors. A DCP is an effective way to consolidate debts without having to take out an additional loan.
#3 Money Management
Finally, there’s money management. Once you’ve got a clear plan for getting out of debt, you need a budget that helps you make those monthly payments on time. You can use some of these ideas for better money management:
- Keep track of everything you spend so you can make sure you balance your budget at the end of each week.
- Share your financial goals with your partner or spouse so that you’re on the same page about money.
- Think about the opportunity cost of each purchase. When you’re saving and investing, your money grows, so every purchase you make is money that’s not building your wealth.
There is a way out of debt. Stop worrying about how you got there and start thinking about ways you can move forward. Start with a financial assessment and go from there.