Budgeting

Managing Debt: Strategies for Those Struggling Financially

December, 2024

Develop a Debt Management Plan

Once you have a clear understanding of your financial situation, the next step is to develop an effective debt management plan. A well-thought-out plan will help you prioritize your debts, set realistic goals, and ultimately work towards reducing your debt burden.

One of the most important aspects of managing debt is deciding which debts to pay off first. Generally, you want to focus on high-interest debts since they cost you more money over time, although there are exceptions to this rule, such as if you owe money to a family member.

From there, there are two popular strategies you can use to tackle your debts:

• Snowball Method: This method involves paying off your smallest debt first while making minimum payments on other debts. Once the smallest debt is paid off, you roll the amount you were paying on that debt into the next smallest debt, and so on.
• Avalanche Method: This approach focuses on paying off the debt with the highest interest rate first while making minimum payments on others. Once the highest-interest debt is paid off, you move on to the next highest, and so forth. Set realistic financial goals to stay motivated and keep your debt management plan on track. For example, set a target for how much debt you want to pay off in the next six months or one year.

Include Debt Repayment in Your Budget

Integrating debt repayment into a well-planned budget will help you allocate sufficient funds for debt repayment while still covering your essential expenses.

Start by creating a comprehensive budget that outlines all your income and expenses. List your monthly income from all sources, including salaries, freelance work, and any other forms of revenue. Next, make
a detailed list of your monthly expenses, such as rent or mortgage, utilities, groceries, transportation, insurance, and medical costs. Don’t forget to consider irregular expenses like annual fees, car maintenance, or holiday spending.

Once you have a clear picture of your financial inflows and outflows, it’s time to allocate a specific portion of your income toward debt repayment. Look at your list of debts, including the total amount owed, monthly payments, and interest rates. Allocate a fixed amount every month specifically for paying down your debts. Treat this allocation as a non-negotiable expense, just like rent or utilities.

Financial situations can change due to various factors, such as a pay raise, job change, or unexpected expenses. Periodically evaluate your budget to ensure that it aligns with your current circumstances and continues to support your debt repayment goals.

Cut Costs and Boost Income

If you’re struggling financially, finding ways to cut costs and boost your income can be a game-changer. Take a close look at your spending habits and identify non-essential expenses that can be reduced or eliminated, such as:

• Dining Out
• Unused subscriptions like streaming services, magazines, and gym memberships
• Impulse purchases
  

Here are a few ways to boost your earnings:

• Take on an extra part-time job or freelance gig that fits into your schedule.
• Declutter your home and sell items you no longer need through online marketplaces or local consignment shops.
• If you have a hobby or skill, think about ways to monetize it. For example, if you’re good at crafting, you could sell your creations online.
• Explore passive income options such as renting out a room.
  

Often, the most effective way to manage debt is by combining cost-cutting measures with efforts to boost income. Evaluate your budget regularly and look for new opportunities to save money and earn more. It may require some lifestyle adjustments, like sacrificing some leisure activities, but the benefits
will be worth it in the long run.

Get Professional Help

When managing debt feels overwhelming, especially if you’re struggling financially, seeking professional help can be a game-changer. Financial experts can offer valuable advice and financial solutions to help you regain control of your finances.

Credit Counselling Services

Credit counselling agencies provide professional advice and assistance to help you manage your debt more effectively. These agencies can offer educational resources, budgeting assistance, and personalized debt management plans. Here’s how they can help:

• A credit counsellor will review your overall financial situation, including income, expenses, and debts, to identify the root causes of your financial struggles.
• Based on your debt assessment, the counsellor can help formulate a realistic debt management plan tailored to your circumstances. This plan may include budget adjustments, debt payment priorities, and spending guidelines.
• Credit counsellors often negotiate with creditors on your behalf to lower interest rates, reduce monthly payments, or eliminate fees to help make your debt more manageable and accelerate your repayment process.

Debt Consolidation

Debt consolidation involves combining multiple debts into a single loan, usually with a lower interest rate and more manageable monthly payments. This approach simplifies your repayment process and can save you money on interest. Here are the steps involved:

1. Research different debt consolidation options, including personal loans, balance transfer credit cards, and home equity loans.
2. Look for consolidation loans with favourable terms, such as lower interest rates and reasonable repayment periods. Be sure to read the fine print and understand any fees associated with the loan.
3. If you decide on a consolidation loan, complete the application process and, if approved, use the loan funds to pay off your existing debts.

Debt Settlement

Debt settlement involves negotiating with creditors to pay a lump sum that’s less than the total amount owed. This can be an option for those who are already significantly behind on payments. Some companies specialize in negotiating settlements with creditors. Ensure the company is reputable and
doesn’t charge upfront fees.

Debt settlement can have negative consequences, including a significant impact on your credit score. Additionally, forgiven debts may be considered taxable income. Alternatively, you can try negotiating directly with your creditors. Explain your financial situation and propose a lump sum payment that’s less than the total amount owed.

If you find yourself needing additional support or quick financial relief, explore the emergency loan options available through Speedy Cash. With a range of payday loan services designed to help you manage short-term financial needs, Speedy Cash can provide the assistance you need to stay on track with your debt management goals.