You take out loans for many reasons. Maybe you’re a student struggling to keep up with tuition, or you’re a new homeowner signing up for your first mortgage.
Regardless of your debt’s source, it’s easy to get trapped by too many loans.
If you feel like you’re drowning from all the interest rates, repayment plans, and late payment fees you’re facing, take these steps to get back on track.
Refinance Your Debt
Refinancing your debt means working with your lender to make your contract more beneficial to you.
If your lender is open to refinancing, refinancing loans is a great way to ease your financial burdens. Common reasons for refinancing your loans include receiving lower interest rates and longer repayment terms.
For example, you signed up for a fixed-interest rate loan because interest rates were high when you took it out.
Now the economy has changed and interest rates are lower, so you work with your lender to alter your contract and make your loan have adjustable rates.
Different lenders offer different refinancing options based on your debt situation.
If you have a secured loan and your collateral’s value has increased, consider cash-out refinancing.
If you want better interest rates and repayment schedules, rate-and-term refinancing is your best bet. To take advantage of new low-interest programs, try consolidation refinancing.
Finally, if you suddenly have extra money, use it to pay off part of your loan and reduce the cost of your monthly repayments with cash-in refinancing.
Talk to your lender and accountant to see which approach works best for you.
Understand Your Expenses
Now that you’ve shaken up your debt with refinancing, you need to get to know your debt.
Make a spreadsheet for keeping track of your debt, and include the following information for each loan:
- Company name
- Purpose
- Date contract begins and ends
- Principal amount
- Interest rate
- Monthly repayment cost
- Penalties for late payments
Now that you have this spreadsheet, it’s easier to see all the financial obligations you have each month.
You also can see trends in your spending and avoid them in the future.
For example, if you’ve taken out multiple loans to cover your monthly bills, you know that your financial system isn’t working.
Save Your Extra Money
When you’re in the middle of a financial crisis, saving money is the last thing on your mind.
Instead, you want to pay off your debt as quickly as possible. This is an admirable goal, and you should keep up with your monthly loan payments.
However, whenever possible, put your extra money in a savings account. It’s harder to spend money in a savings account than a checking account because there are limits on how many times you can withdraw money.
Additionally, if you’ve made a mistake with your calculations and suddenly have much higher debt payments than you thought, you don’t have to take out more loans to cover the expense.
Also, once you get in the habit of saving, it’s easier to control your finances.
Get Help
Debt is a taboo subject in the United States, but it’s time to push past that social norm and get help. Speak to a financial coach or accountant about ways to control your debt.
These financial experts can explain how your finances fit with refinancing and other debt-relief options, such as bankruptcy and debt settlement.
They also make budgeting suggestions so that you don’t have to take out so many loans in the future.
Finally, they’re well-versed in tax law, so they help you save money on your taxes, giving you more capital to cover repayments.
If you know that your debt is excessive but you can’t seem to stop buying things, then you may be addicted to spending money.
While you should still see an accountant so you can address your spending problems, you also need help dealing with your addiction.
Many areas offer Debtors Anonymous chapters, where you discuss and work through your debt problem with people in a similar situation.
Consider signing up for one-on-one counseling as well; your primary health care provider knows good therapists that accept your insurance.
Make a Long-Term Plan
It’s hard to think about the future when you’re struggling with debt.
However, not being able to plan ahead is part of your problem’s source, so you need to start looking to the future.
How long will it take you to pay off your debt under your current repayment plan?
Are there ways to reduce this timeframe?
For example, if you cut down on discretionary spending or move to a cheaper area, do you have more room in your budget to take care of your debt?
You should also consider life changes that affect your loans.
Changing careers could give you extra money to put towards your debt, but if you have to go back to school or move, it adds to your financial burden.
Similarly, when you get married, you usually receive tax breaks that help your financial health.
However, if you have kids, your expenses increase and you have to think about their financial futures.
This doesn’t mean that you shouldn’t try to change careers or start a family.
It does mean that you have to think about ways to avoid taking on more debt while keeping up with your current repayment plans.
With some research and professional help, you can make it through this crisis and have long-term financial success.