Do you struggle with debt? Whether you’re a homeowner or not, debt can be stressful, and it can put a lot of pressure on your finances. The good news is that since debt is fairly common, there are a lot of established debt management tips designed to help your recovery. From small tweaks in your lifestyle to more major financial decisions, here are some methods you can use to regain control of your debts and your money.
Use your home to your advantage
If you’re a homeowner, you may be able to benefit from a refinance. Many homeowners have a lot of home equity, but it is tied up in their house. Refinancing your mortgage is something homeowners do to access that existing home equity, which can support you as you deal with debt. If you are able to refinance and secure a lower interest rate, this will reduce your monthly mortgage payment amount. That extra cash flow can then go towards paying off other debts.
There is also the possibility of debt consolidation, which is a longer-term option for those who are dealing with larger amounts of debt. This combines all of your existing debts into one lump sum, with one interest rate, allowing you to make just one monthly payment. The idea is this one interest rate will be lower than some of your current rates, and that one payment is easier to manage. Be sure to reach out to a broker before taking this route!
Automate your payments
One of the most frustrating reasons to be in debt is because you simply lose track of your payment due dates. If you make multiple payments each month, this is easy to do. A simple solution to this may be automating your payments. Many online banking accounts allow you to set up an automatic transfer that sends the money you owe on a specific date every month. This way, you don’t have to remember to manually make your payments. This is fairly easy to set up, as long as it is an approved method from your lender(s).
Delay any new debts
As far as debt management tips go, this may seem like an obvious one, but it’s worth a reminder. As long as you are dealing with debts that require much of your finances, do your best not to add any new debts to the pile. Of course, the more debt you have, the more you owe, and the harder it can be to catch up again. If you’re prone to overspending, lock your credit card away somewhere safe where you’re less likely to use it. Put off any major purchases that aren’t absolutely necessary. Remind yourself that once you have gained control of your debts, you will be in a better position to tackle future expenses.
Pay your debts evenly
There is a common belief that people with debts should prioritize high interest payments over all others, and deal with those before moving on to debts with lower rates. In theory, this makes sense, as higher interest rates result in larger payments. However, you do not want to focus on one payment and neglect the others, because this can result in late or missed payments. When you miss a payment, you will face late fees, which will add onto your load. In the long run, it might not benefit you at all to prioritize your largest debts if you end up growing your smaller ones. Instead, try to pay your debts evenly. Even if this means making the minimum payments for each debt, it will prevent you from falling behind and facing additional penalties.
A note to future homeowners
If you are not currently a homeowner, can you buy a home if you have debt? The short answer is yes. Many homeowners have existing debts, and are still able to secure a mortgage. It’s fairly common to do, and it allows you to start building home equity sooner. However, there are some important factors to consider. Buying a home with debt might affect the amount of mortgage financing you receive, and it may put you at risk of becoming house poor. You can read this post for more information about purchasing a house with debt to help you decide if it’s something you want to consider.
These debt management tips are a good place to start getting a handle on your finances. However, if you are really struggling with your debts, it’s important to reach out to a mortgage broker, especially if you are a homeowner! We can evaluate your situation to find the best solution for you. Debt is common, but we can help you eliminate it from your financial future.
If you have any questions about your mortgage, get in touch with me!