It’s no secret that the pandemic has impacted and damaged millions of Americans’ financial well being through the loss of jobs, income, and illness. But it’s also a great time to take control of your finances, and most importantly, your debt.
As of December 2020, an Experian Consumer Credit Review reported that there is more than $756 billion in credit card debt in the U.S., with the average balance higher than $5,000 for those who own credit cards. Adding to that, a Pew Research Center Review found that roughly four in 10 Americans say they have taken a pay cut, been laid off, or live with someone who has been laid off since the start of the pandemic. With tax season in play and American Rescue Plan stimulus checks heading to millions of qualified Americans, the extra financial resources may be a part of the solution.
But how should you actually start?
The first step toward tackling debt is to get a good overview of your household expenses and make a budget. There are a number of ways to track financials, including the zero-based budget. In this budget, you start your monthly income and subtract all expenses from it until you get to zero. This allows you to see where every dollar is being spent. There are also a number of steps you can take to limit your budget so you can apply additional cash flow to your debt, including cutting household costs, applying various repayment techniques (like a debt avalanche), and looking out for alternative cash avenues.
Once you’ve created a budget, decide if you can afford your household expenses without additional cash flow. Experts are currently advising that as long as you’re able to pay for groceries, bills, and repairs that need taking care of, then using your tax refund and stimulus check to pay down debt, especially high-interest loans, is a good financial decision.
But if you’re struggling with staying afloat and finding that you just don’t have the finances to tackle surmounting credit card debt or personal loan debt, consider meeting with a professional credit counselor and looking into a debt management plan. Credit counselors will work with you and your credit card companies to consolidate your unsecured debt, lower your interest rate, and secure affordable monthly payments you can pay off in three to five years.
In the long run, seeking help through a debt management plan or applying additional cash flows to pay off debt will help you toward becoming more stable as you prioritize your financial health and work toward alleviating your fiscal burdens.