Five tips to get you out of debt on a low income

The living check to verify is not easy. But living check for check while trying to get out of debt can be even more daunting. According to NerdWallet.com, the average American household has $ 15,355 in credit card debt and about $ 129,579 in total debt. Many Americans need financial solutions to help ease their debt, save for retirement, and bring them closer to homeownership.

I recently spoke with Joyce Tan, Chief Compliance Officer for Christian Credit Counselors, a non-profit organization that helps people avoid bankruptcy and improve their financial health. Budgeting was the main topic of our discussion. Here are five tips to remember.

Set your budget

“Budgeting is the key to making people aware of how much they can afford on spending. It also helps determine their current spending habits, ”Tan said.

Budgeting is the process by which you record your monthly income and expenses on paper or in a spreadsheet. A budgeting exercise is essential to identify expenses to reduce.

“Sometimes life happens; medical emergencies happen or your car breaks down, ”Tan explained,“ but if you haven’t set aside funds to cover incidentals, it can make emergencies more difficult. “

Explore a Debt Relief Program

Tan shared the tips she learned from clients as part of their debt relief program. Its average program participant takes three to five years to get out of debt.

“When customers contact us, the first thing we need to do is understand their debt amount and how they got into debt,” Tan said. “Our program aims to reduce our clients’ interest rates through a ‘snowball’ method of repaying their debt.”

This debt reduction strategy suggests starting with the smallest balance owed, while paying the minimum payment owed on the largest debts. Then, after the smaller debt is paid off, move on to the next smaller balance, and so on.

Tan suggests that low-income people take advantage of programs that simplify payments. Tan’s nonprofit provides free budget and debt analysis before his team works with creditors to lower interest rates and consolidate bill payments into one monthly payment.

“Program participants only give us one fixed payment, and then we distribute their money each month. It helps them take one step closer to debt relief, ”she said.

Financial Literacy Course

“Classes are a great way to learn about your finances,” Tan suggested. “They help you with basic tasks, like reading your credit report or understanding your credit score.”

Tan’s organization offers free credit and budgeting classes, student loans, and even special classes for military service members. Their teaching team offers classes in person, online or by conference call. Consider researching financial literacy or coaching classes in your area.

“Without some solid solutions, the debt can become a never-ending cycle due to the interest that goes on credit cards and late fees,” she said.

Learn About Credit

Sonny Douglas, a senior Fresh Start consultant at Quicken Loans, said he believes there is room for more credit education in debt relief. It helps clients improve their financial situation so that they can increase their credit score and gain access to home ownership.

“One of the most important things I see is that people don’t know which debt to pay off or pay off first,” he said. “Many customers believe they should pay off cash receipts or installment loans and then start closing their credit cards. But the only way to pay off collections that help increase your credit score is to delete the collection once paid. “

Douglas recommends that its customers try to use less than 10% of the available balance on their credit cards.

“I tell them if they plan to pay off a credit card and close the account then they will lose the payment history that they may have accumulated over time,” said Douglas. “Some people don’t realize that closing all of your credit cards can hurt your score.”

He also recommended that some clients take a breather when paying off debt – one debt at a time.

“The best advice I can give is probably less is more. The less credit you have to work with, the easier it will be to control, ”he said. “A $ 10,000 credit card can improve your credit the same way a $ 100 credit card can if you use it correctly.

Check the credibility of resources

Douglas suggests avoiding quick and easy debt solutions that could sink you deeper into a financial hole.

“Sometimes I talk to clients who jump online and turn to the wrong resources,” he said. “Credit is extremely delicate and there aren’t many places customers can go to get the help they need. Beware of the many scams. “

Douglas often refers his clients to CreditKarma.com because the company allows you to update your credit report every week. We also use AnnualCreditReport.com because anyone can go there to get a free report and score once a year.

If you have limited funds, tackling your debt can seem like a high mountain to climb. But these tips will help you manage your bills or limit monthly expenses. Credible resources are available and credit counseling is a great place to start. If you have any questions or other great debt relief solutions, please share them below.

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About Clint Love

Clint Love

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