How To Organize Debt Coming Out Of COVID-19
The COVID-19 pandemic has caused an upheaval. Many people have had their employment either reduced, eliminated or put on hold. In the midst of employment uncertainty, many have been struggling with extra costs from the pandemic or stay-at-home orders. Government programs such as the stimulus check and the $600 weekly unemployment boost have helped some, but many people are finding themselves with extra debt as we look to come out of the coronavirus pandemic.
Let's take a look at some of the best ways to organize your debt coming out of the COVID-19 pandemic. Most of these strategies are the same as or similar to ongoing debt organization or repayment strategies. But if you find yourself in a tough situation with added debt pressure due to COVID-19, hopefully these strategies will give you a place to start moving forward.
For additional information with COVID-19 finances, check out our Rocket Learning Center.
1. Make A List Of Your Debts
If you’re wondering how to pay off debt, the first step is one of the easiest and most straightforward: Make a complete list of all of your debts. This could include debts from credit cards, medical bills, student loans or business debt. You should even include any home mortgages or loans on your vehicles.
Your list should include the total balance, the creditor, the interest rate and the minimum monthly payment. If it’s a loan with a term like a car loan or mortgage, include the total number of payments remaining as well.
2. Stop Digging The Hole
Once you’ve calculated the total amount of debt you have, you can move onto the next step. This should be done in conjunction with creating a budget. You want to make sure that going forward you’re not adding to your debt amount each month by living within your means. After all, the first step of getting out of a hole is to stop digging.
Depending on how much outstanding debt you have, it may seem impossible to ever get rid of your debt. But thousands of others have been in your position and been able to do it. Just like eating the proverbial elephant, you get rid of a mountain of debt one bite at a time.
Depending on the amount of debt you have and the interest rates on those debts, it may make sense to consider a debt consolidation personal loan, which can put all of your debts together and possibly lower the interest you have to pay each month.
In What Order Should I Pay Off Debt?
There are several different strategies you can use to pay off your debt. Some people advocate the snowball method. Using this system, you put your extra money toward your debt with the smallest overall balance. This gives you the satisfaction of paying off one of your debts soon. Then, use the extra money you get from having one fewer debt toward your next smallest debt. That helps you “snowball” the debt until it’s gone.
Another school of thought says to start with the debt that has the highest interest rate. This is called the avalanche method. Using this strategy will help you minimize the total amount of interest that you pay. The downside is that you may not have the satisfaction from completely eliminating any one specific debt soon.
3. Make A Plan To Pay Down Or Pay Off Your Debt
If you’re wondering what debt should be paid off first, the truth is that it doesn’t really matter. Whether you use the avalanche or snowball method, the highest interest method or any other item that works for you, the real trick is to make a plan and stick with it. As long as you contribute toward paying off your debt each month, you’ll be able to eventually eliminate it.
Is It Better To Pay Debt In Full Or In Payments?
If you settle a debt for less than the full amount, it’ll have a definite negative impact on your credit score. If you’re looking to protect your credit score during COVID-19, you should consider using one of the methods mentioned earlier to pay your debt in full. As always, individual situations may differ, so what works for one person may not be the best option for everyone.
Hopefully these strategies can help you as you look to successfully organize and pay off your debt coming out of COVID-19.
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