Household Debt is Raising At An Alarming Rate… How Do You Stop It?

A majority of households today are under an alarming financial strain, and the Covid-19 pandemic has not made the situation any better for many families and individuals across the US. Unemployment is at the highest rate since the Great Depression. So many people are out of jobs as the economy slowly starts to reopen; it has been almost impossible for those affected by the pandemic to keep up! 

Even before the pandemic, the cost of living all over the country was going up faster than salaries could keep up. Now many households are struggling to get by while they wait for their unemployment check. Many families and individuals have had to wait weeks even months, just to see those checks.

Unfortunately, this has led to even more debt for Americans as they struggle to make it through a very tough few months, with quarantine, businesses being closed to keep everyone safe, and now a slow reopening of our economy, but the damage is done for many people. If they did not have the income, they might have decided to use high-interest lines of credit to keep up, over having no money to cover the essentials.

So now, what do they do? A vast majority of American’s had mounting debt before the pandemic. Now that Covid-19 has turned the world on its head, the debt problem has gotten even bigger! 

A once steady salary for a family is now keeping families struggling and living paycheck to paycheck. Most families these days are two-income houses, but that is no longer enough in many cases.

Now a lot of families are two-income houses with family members who have multiple jobs to keep up with the cost of living in this economy, and the complications of the pandemic have put many of these jobs in jeopardy. When bills such as childcare, utilities, car loans, etc. build-up, and there is not enough to go around, much less live on, families turn to credit cards for additional funds to live off of. 

The problem with this solution is the high-interest rates that come with revolving credit card debt when the bills become too much to pay in full each month. Credit cards may seem like the best option at the time, but when you have to start making the monthly payments and dealing with the high-interest rates, you may wish you had made other choices to keep up with your costs, rather than relying on credit. You do have other options, here are some ways to make getting through this rough time a bit easier for you and your family:

Budgeting

The best way to keep your family out of debt is to organize a monthly budget and stick to it. The first thing to do is calculate how much income you have coming in every month. If this amount changes due to loss of income, extra income from a raise, or any other steady money that will be coming in monthly, make sure you adjust your budget to fit your new needs and abilities.

Now that you know how much you have coming in, you can add up how much needs to go out for bills and set payment days up for yourself based on when you get paid as well as the due dates. Doing this in advance will make sure you don’t make late payments, and you will never have a guessing game of what to pay when your check comes in. You also need to make a list of extraneous expenses.

Add that amount up with your bills to make sure you have more coming in than you have going out. If you end up with more going out for some reason, there are a few things you can do to fix this problem. 
 -Apply for a short-term forbearance  
 -Cut extra expenses
 -Price shop to get monthly services such as your phone and internet service for less money.
 -Consolidate/negotiate credit card bills

Apply For A Forbearance

During the pandemic, it has become a possibility to put payments such as your mortgage into forbearance until you are on better financial footing. This was possible before, for 180 days, if you lost your job and couldn’t pay your mortgage, but the Cares Act has made it accessible to more Americans due to the Covid-19 pandemic. You can also contact your utility and credit companies for forbearance allowance due to financial hardship from the pandemic. The forbearance can be extended if you need it because you can’t return to work because of the pandemic.

Cut Out Extra Expenses

When you go through your expenses, you need to make a list of everything you spend regularly and decide if it is a necessity. When you design your budget, you need to make sure you are not spending more than you have coming in monthly. Going through your extra expenses to see what you can cut out, will allow you to cut out any excess you are spending on things that you don’t need. Making these necessary changes will help you free up space in your budget that will allow you to pay your bills and save more easily. 

Save An Emergency Fund

Having an emergency fund is essential when planning ahead to keep your family out of debt. You never know when you will have an unexpected expense, and you don’t want to get stuck either not being able to pay for it or having to put it on credit. Having enough money set aside to cover unexpected costs will not only give you peace of mind but will also allow you to keep yourself out of debt. When you set up your new budget, make sure you set aside a small amount to put in the emergency fund from each paycheck. Even if it is only a small amount, it adds up over time! 

Balance Transfers

Deciding to do a balance transfer can often make dealing with credit card debt much more manageable. If you have debt and your credit is in good standing, it is often possible to apply for a balance transfer to a different card. This allows for only one monthly payment, rather than several, and a low promotional interest rate.

Having this promotional rate is helpful because, depending on your credit, you can often get a very low-interest rate for the promotional period. This eliminates high-interest rates on your various cards and allows you to pay off your debt in one low payment. For a small fee, you can consolidate your payments into one and worry less about it. Make sure to pay off the amount before the promotional period is up, or the high interest will start again. If you need more time to pay the debt down, you can often transfer the amount that is left to another card for a new promotional period.

Debt Consolidation Loans 

For households who have an asset such as a house, a debt consolidation loan may be the right choice to make paying off debt much more manageable. You can apply for a refinance or consolidation loan to pay off your bills and then have one low payment or have the new payment built into your mortgage. This is a good option because you can often get a much lower interest rate, and your debt will be “paid” by the loan. This will help your credit score, and that makes everything easier. 

 Debt Negotiation

This option is best for households that have fallen behind in their debt. If you have debt that has gone into collections, debt negotiation is an excellent way to cut down how much you need to pay, along with setting up a lower monthly payment to get rid of the debt once and for all. If you don’t feel comfortable calling the third-party debt collectors on your own, some companies will call and negotiate the settlement amount for you.

Just keep in mind this option only works for those who already have debt in collections. Don’t ever let a company tell you that you should stop paying your bills so they can settle the amount for you. If you already have debt in collections and want to make the debt collectors stop calling, this option is for you.