Working to pay off your debt can seem daunting. The good news is that getting debt advice early can keep you and your credit in a better place. If you are looking for debt management advice, it is readily available, and you can start the process as soon as today thanks to our partners at GreenPath Financial Wellness. Here's some advice from their experts!
Are you concerned about making a debt payment or meeting the mortgage? Most adults have at least some debt, but regardless of how much you owe, it is imperative to manage debt proactively. You want to do everything you can to keep up your payments and not let them get out of control. Negative marks on your credit report can make it challenging to buy a house, get a loan, or even something simple like renting a car.
Given the unexpected challenges that may come along, it is smart to look ahead, ask for help when you need it, and do everything you can to know where you are financially and where you want to be. In other words, make a plan!
What are some of the warning signs that debt is becoming a challenge?
The process of finding yourself in too much debt doesn’t happen overnight or over a few months. In reality, it happens gradually, but there are signals along the way you may be headed into trouble.
- Do you know how much debt you have? – If you don’t know the total of all of your debt, it is difficult to know if you are headed for problems. On each of your credit accounts, it is always a good idea to review your balances, debt payment, interest rate, and terms. Colleen Mott, partner experience manager at GreenPath, says, “If you ask yourself or ask someone how much debt they have and don’t know, that can be very telling.” Remember, ignoring your debt doesn’t make it go away. Take a realistic look at your finances and then put a plan in place to get, or keep yourself on track.
- Do you only make minimum payments? – Here is a piece of free credit card debt advice. Only making the minimum payments, while technically meeting your obligation adds time and interest to what you owe. It can also be an indicator your income may not meet your monthly bills.
- On your credit card statement, it will clearly show how much you owe. It will also show how long it will take to pay off your current balance. Depending on how much you owe, this can mean it might take you many months, years, or even decades to pay off your debt. If you find it takes decades to pay off what you owe, this is a good sign your debt is becoming a challenge. Paying the minimum due will delay your debt payoff. You will eventually take care of the debt, but it will take a lot lot longer. As you are able, make more than the minimum amount due on your debts. If you feel overwhelmed, get credit card debt advice from an accredited debt counselor like GreenPath Financial Wellness.
- What’s on your credit report? – Have late or missed payments started to affect your credit report? Having one delayed payment won’t affect your credit history for a long period of time. But, a pattern of missed or delayed payments can affect your ability to get credit over time.
- Are you overextended? – When you see your credit card balances go up, but you are making the same amount of money, this could mean your income and spending are not matching up. When you notice this, it could be a warning sign as well. If you can’t make your debt payment when you are over your limit, it can negatively affect your credit score.
- Are your credit cards maxed out? – Is your current standard of living funded by your credit cards? If your cards are near or over your limit consistently, this could be a big red flag. Being at or over your limits can add more fees, increase your monthly minimum payments, and put you in danger of missed payments, collections, and negatively affect your debt payment history.
If you have any of these situations going on and are looking for debt management advice, it is a good time to look at your complete financial picture, put a debt payoff plan in place, and get the debt help you need.
When should I seek advice to manage debt?
Now that you know the warning signs, you may ask when a good time to get advice on handling your debt is? Many people think credit counseling is only for people with a lot of debt, but that’s not always the case.
Even before your debt gets out of hand, it is a good idea to educate yourself and consider getting debt advice. Credit counselors can help as you create a debt payoff plan and learn how to manage your finances better. Here are some things to consider as you decide if credit counseling is right for you and your particular financial situation.
- Do you need help from a professional? – Credit counseling, also known as debt counseling, helps people manage their finances and solve their debt problems. Counselors work with people to:
- Manage money and debt
- Create a budget or spending plan
- Understand credit scores
- Learn about options, tools, and educational resources for getting out of debt
- Do you have out-of-control unsecured debt?– If you have a lot of unsecured debts like credit card debts that are at or above your credit limits, you should consider getting debt advice from a certified credit counselor.
- Are you behind on payments? – If you are currently having challenges keeping up with your payments, it is a perfect time to get debt help.
- Do you have questions about your debt and finances? – Credit counselors are experts at providing debt advice tailored to your situation. Regardless of what you are facing financially, a certified counselor can help.
What kinds of debts can a debt management plan help with?
As you put a strategy in place for your debt payoff, a debt management plan can help you tackle all of what you owe.
You may wonder how debt management plans are structured. They are set up to actively work with your creditors to bring your unsecured accounts, like credit cards, current. This structured credit card debt advice will also lower interest rates and potentially eliminate fees. This helps because more of your payment will go toward reducing your account balances. It can also help you pay off debts faster. A bonus is that once the debt management plan is established, collection calls will likely go away and your stress level will be greatly reduced.
If you are considering a debt management plan, look for a reputable, nonprofit credit counseling agency to assist you. GreenPath offers free debt and credit counseling, and if appropriate to your situation, can support you through a debt management plan.
GreenPath offers a ton of free worksheets, tools, and guides that anyone can access and use.
When debt management plans work best
Debt management plans are designed for anyone wanting to pay off their debt in a systematic way. Those people with several high-balance consumer credit cards, who only make monthly minimum payments; those paying high-interest rates; and anyone who receives collection calls should consider a plan.
They can be customized to fit many situations, many types of debt, and creditors. A single, lower payment is very attractive to many. Also, seeing an end (or at least a significant reduction) of calls from debt collectors and creditors.
A plan may not be best if you have trouble paying secured debts, like a mortgage or car payment. It is also not designed for those whose income barely covers necessities, like food and utilities.
What is the debt snowball method?
The debt snowball method is an active strategy to eliminate debt as quickly as possible. You start by paying your smallest debt first. You then apply the money you were putting on that bill onto the next-smallest debt owed. Once you have figured out how much money you can afford to add to the monthly minimum payment for your smallest debt, pay the minimum payments on your other outstanding debts.
To be effective, you would continue this process until all of your accounts are paid off. As money is used from the smallest balance to the next on your list, the amount “snowballs” and gets bigger over time, and the debt is reduced at an accelerated pace.
What is the debt avalanche method?
Much like the debt snowball method, the debt avalanche method is a way to accelerate your debt, with one difference. The “avalanche method” tackles the debt with the highest interest rates first. Once the higher-interest debt is paid off, you apply that money toward the account with the next highest interest rate and continue until your debts are paid off. By focusing on the most expensive debt – with the highest interest rates – you will effectively pay less over time.
Over time, you may save some money with the avalanche method, but debts with high balances may take time to pay off. If you decide on this method, it may be discouraging, since it may take longer to pay off a large balance.
How long does debt counseling take?
Reputable companies like GreenPath will begin the process with a confidential, free debt counseling assessment to understand exactly where you are financially. A trained counselor will ask several questions, look at a lot of information including your debt payment history to help you understand your income and expenses, along with getting a realistic picture of what is in front of you to eliminate your debt. During the assessment, the counselor will give you information to help you identify how you can reduce expenses, as well as save money. This initial debt counseling session averages about an hour, depending on your situation.
The length of time for the whole debt management plan can depend on how much debt you have. In general, most are completed in five years or less. The debt management process doesn’t happen overnight, but it can give you peace of mind, and point you toward long-term financial success.
As you look for debt management advice, don’t worry about how much it will be to get started. Low cost and free debt advice are available. GreenPath is a free debt resource, contact a counselor today to get started.