Facing multiple debts at the same time? This is what to do
- Published on Thursday, 28 May 2020 12:10
- Last Updated on 07 July 2022
- Monica Costa
- 0 Comments
As of 2016, the average debt for Americans aged 35-44 was $133,100, according to the Federal Reserve’s Survey of Consumer Finances. Most of this debt is mortgage debt, with around 50% of this group carrying a credit card debt of $2,500 or higher. So, if you feel you’re drowning in debt, you’re probably right, but you aren’t alone. If you’ve decided it’s time to get out from under a debt burden weighing you down, try these ideas for facing multiple debts at the same time.
Debt Consolidation Loans
According to the organisation National Debt Relief, debt consolidation loans are one of the most popular options for paying off multiple debts. These loans consolidate unsecured debt into one lump-sum payment, which can typically be paid off in 24-48 months. One of the most appealing benefits of debt consolidation loans is the way they are arranged.
How Debt Consolidation Loans Work
When a consumer enrols in a debt consolidation program, the company they hire negotiates smaller balances on outstanding debts. The company agrees to pay off the debt in its entirety for a smaller balance. That smaller balance is then combined with the smaller balances negotiated on other debts. These balances are rolled into the single monthly payment mentioned above.
The Avalanche Method
Consumers with smaller debt levels may prefer to tackle debt on their own. One of the most frequently used options for tackling debt this way is by using the avalanche method. As explained by CNBC, the avalanche method is where a consumer lists out all of their unsecured debt, in order of the smallest amount to the largest amount. He or she then makes the minimum payment on all debts except the smallest one, while putting as much money as possible towards the smallest debt.
Making the Avalanche Method Work for You
The idea behind the avalanche method is to pay off your smallest debt as quickly as possible and then roll that money towards the next-largest debt. After the second one is paid off, the consumer would then combine the money he or she was paying on the two smaller debts and use that amount to tackle the third-largest debt. Hence the name avalanche method. This method takes discipline, though. Once that first debt is paid off, it’s tempting to put that money you were spending on debt into your pocket rather than towards the next debt.
Tips for Making Any Debt Re-Payment Method Work
No matter if you choose one of these methods, or another one altogether, US News has some useful tips for paying off debt. These tips are useful no matter what debt relief option you choose.
- Set a budget and stick to it
- Change your spending habits
- Stop using credit cards
Creating a budget and then sticking to it is key when paying off debt. To keep yourself from feeling frustrated that you aren’t able to enjoy your hard work, be sure to budget a weekly allowance for fun spending. Having cash designated for discretionary spending can also help you stop using your credit cards and begin teaching you to change your spending habits. The key to using an allowance, just like sticking to a debt consolidation loan or using the avalanche method, is teaching yourself to stick to the plan you’ve made.
Monica Costa founded London Mums in September 2006 after her son Diego’s birth together with a group of mothers who felt the need of meeting up regularly to share the challenges and joys of motherhood in metropolitan and multicultural London. London Mums is the FREE and independent peer support group for mums and mumpreneurs based in London https://londonmumsmagazine.com and you can connect on Twitter @londonmums