If you’re a homeowner and you struggle with debt, it can be hard not to panic or feel overwhelmed. With your monthly mortgage payments and other expenses, it might feel like you’re drowning in financial troubles. The good news is, there are tips you can use to help control your debt, and in some situations, you can use your home itself to your advantage. Sure, your home costs you a lot of money, but correctly accessing its equity can help you clear out your debt. Here are some of the best ways to try dealing with debt, including reorganizing your cash flow, increasing your payments, or using your property for debt consolidation.
Organize your credit card debt
Facing your credit card bill can be a terrifying experience, especially if you don’t know where to begin. First things first, we recommend organizing your credit card debt, either by the amount you owe, or by the highest interest rate. You want to tackle high interest debt first to avoid interest piling up and adding more to the total costs you will owe. The sooner you start chipping away at those payments, the sooner you can be clear of that interest. Another option is to pay off some smaller expenses first, just to clear your debt a bit and hopefully lower your stress levels. Instead of trying to spread payments across the board, organize them by priority. This way, you can consistently chip away at each expense which will help you make the most progress.
Increase your payments, if possible
Your debt will come with minimum payments you must make. These minimum amounts are likely to vary based on your total costs and interest rates. If you’re able to, you should try to pay more than that minimum amount. This puts you ahead of the game in terms of paying off your total expenses ahead of schedule. Your credit card also comes with monthly interest charges, so the higher your balance at the end of the month, the more you will owe in interest. By making more than the minimum payments and keeping your balance as low as possible, you will owe less in interest. Making more payments earlier might feel pointless at first, but it pays off at the end of the month.
Hold off on adding more debt
While you’re dealing with debt and organizing your finances, you should try to avoid adding additional debt until you have a handle on your current debts. It’s easy to pile on the debt, but keeping as much extra debt away as possible will make a huge difference in the long run. This includes car loans, renovations, and lines of credit. You should also avoid accepting a higher credit card limit to reduce your chances of spending more. You might be eligible for these things, but that doesn’t mean you should take advantage of them right now. It’s easy to feel overwhelmed by debt, so keeping as much of it at bay as possible is essential.
Start using budgeting apps
If you think you could use some extra guidance when dealing with debt, you can turn to budgeting apps. Budgeting apps make it easy to have financial advice at your fingertips and stay on top of your spending at all times. These apps focus on helping users better organize their money, track their spending, and work towards their goals based on their income and savings. Financial apps have all kinds of different features, like organizing your money in digital envelopes, tracking your spending, notifying you of upcoming payments, and more. Do some research to see which budgeting app might suit you best!
Consider debt consolidation
If your debt needs some more hands-on attention, this is when you can consider a refinance and debt consolidation. Since you’re a homeowner, you have likely built up home equity, meaning you’re sitting on a valuable asset that may be able to help you out of your debt. Refinancing will adjust your current mortgage terms in some way, often leaving you with a lower interest rate. This results in extra cash flow that you can use to tackle debt. Debt consolidation goes one step further by combining all your debts into one monthly payment. The goal here is to have one interest rate and one payment, making it easier to keep track of and pay off your debts. You can usually get a lower interest rate with this lump sum as well.
Many homeowners find themselves dealing with debt at some point in their lives. It can be extra stressful to experience debt when you have such a big asset to pay for, because the last thing you want is to default on your mortgage. However, it’s important to know debt is common, and the right debt management techniques can help you regain your financial footing. Take some time to personalize your debt plan to your situation, and reach out to your mortgage broker if you need extra guidance.
If you have any questions about your mortgage, get in touch with me!