How To Manage Your Debt: Strategies & Tools

There isn’t just one reason that people fall into debt. It’s a complex issue and solutions aren’t usually one-size-fits-all. Discover how to start managing your debt with these tips and tools.

Types of Debt

While being in debt is never ideal, some types of debt are better than others because of the effect the debt can have on you or your net worth. To reflect this, debt is sometimes broken up into “good debt” and “bad debt.”

“Good Debt” is debt that is an investment back into yourself or that increases the value of what you own. That could include things like student debt or things that can grow in value over time such as a mortgage.

"Bad Debt” is when you borrow for something that you are losing money on. This could include things like credit card purchases for clothes or food and payday loans. Because of how quick cars lose value, auto loans often walk the line between “good” and “bad” debt.

That being said, even if your debt is technically “good,” that doesn’t mean it won’t still end up hurting you if you become unable to make your payments.

Debt Relief Strategies

There are strategies to help you get back in control if you’ve found yourself falling behind or growing impatient with your debt payments.

Snowball Method: With this method, you start small and work your way up. Begin by paying off your smallest debt first. Then, take the amount you were paying for that debt and pay it toward the next smallest debt, and so on until everything is paid off.

Avalanche Method: Just like an avalanche, you knock out the big things first and then work your way down. Focus on paying off your highest interest rate first, then roll those funds into the next highest, and then the next.

Debt Management Plan: This is a plan set up by a non-profit or credit counseling agency, like GreenPath, to help you pay off your debts. Your counselor negotiates and handles everything with your lenders, often helping you get a lower interest rate or waiving fees. Once it’s set up, you only need to make a single payment to the agency, they handle the rest.

Debt Consolidation Loans: Debt consolidation allows you to combine all of your debts into one payment by taking out a new loan, ideally with a lower interest rate, and using it to pay off your debts. 

Our Get Out of Debt Coach can help you make a customized plan to pay off your debt and learn more about what some of these strategies could look like for you.

Tips to Get Out of Debt

Beyond the major debt payoff strategies, there are other adjustments that you can make to impact your debt.

Reduce Expenses: Free up cash towards debt repayment by reducing expenses, at least in the short term. This could mean anything from a temporary spending freeze on everything except for required bills and living essentials to longer-term solutions like finding a cheaper place to live, selling a vehicle or other efforts.

Pay More Than Your Minimum Balance: Adding even just a little bit of extra money to your monthly payment can help you pay off your debt sooner and pay less overall. Just how much of a difference can it make for you? Use our Debt Payoff Calculator to find out.

Negotiate With Your Creditors: If you’re struggling to pay even the minimum on your debt payments, contact your creditors about making your payments easier to manage. Often, they may be willing to negotiate the terms of your credit agreement so you can make smaller and more manageable payments. Keep in mind that lower payments means it will take longer to pay off debts and you’ll pay more interest in the process.

Utilize Home Equity Loans: Some people use a home equity loan to pay off debt. Home equity loans capitalize on the difference between what you owe on your mortgage and what your home is worth. It’s a second mortgage that you’ll need to make regular payments on. If you can’t make the payments, you risk putting your home in default. 

Building an Emergency Fund

When you’re back on your feet financially, start setting aside money towards an emergency fund. Ideally, you want to keep three to six months of living expenses in a liquid account that you can easily access. But even a few hundred dollars set aside for rainy days can help you avoid using a credit card and building up more debt. 

Managing debt requires understanding the types of debt you hold, exploring strategies to pay it off, and making adjustments to reduce expenses and build financial resilience. If you’re ready to take control of your debt, we’re here to help. Please stop by any of our convenient branch locations or give us a call at 248-322-9800 extension 5 to speak with a team member today.

 

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