It’s no secret that America has a significant debt crisis. The country itself is in a lot of debt, but consumers are suffering worse than anyone. Millions of Americans have debt from credit cards, predatory loans, student loans, and health emergencies. With COVID-19 putting millions more Americans out of work and causing medical issues for many more, the debt crisis is only getting worse.
If you are in debt, you might be wondering what you can do to change things for the better. The problem with debt in America is that once you get into the cycle it is incredibly difficult to get out. High interest rates and a lack of regulation makes it possible for loan companies to take advantage of desperate people.
However, there are ways to deal with debt that anyone can access. Here are 5 of the most useful options.
It might seem strange to hear that one effective way of dealing with debt is getting another personal loan. But debt consolidation loans may well work in your favor. They won’t get you out of debt, but they can make your debt much more manageable.
With a debt consolidation loan, the loan company buys out your debt. They pay off most or all of your bad credit, so that instead of owing money on a number of credit cards and loans, you owe one lump sum. This might not sound like much of a difference, but it can change everything.
Good debt consolidation loans will give you a lower combined interest rate. This is especially true if you have been paying huge amounts of interest to predatory loan companies. A debt consolidation loan will also have less damaging penalties and will make it easier to get a clear view of what you owe.
Earn passive income
Many Americans are working multiple jobs and are still unable to make ends meet every month, let alone pay off their debt. Expecting people to find additional income streams is generally unrealistic. That is, unless you pursue passive income streams.
Passive income refers to any income for which most of the work is done upfront. For example, an apartment you rent out as an Airbnb is considered passive income. The term is deceptive, as being a landlord comes with responsibilities. But you are unlikely to consider these responsibilities as a job in and of itself.
Other kinds of passive income include selling ad space on a website you run, investing in Forex or stocks, and renting out your car.
For people with extensive debt, budgeting may seem like a fool’s errand. It necessitates digging into your finances and trying to find ways to pay for what you need from a sum of money that just is not enough. It can be disheartening.
However, budgeting works when you are struggling to make ends meet. The reason is that there are just so many small ways in which you are spending money you don’t have to. These days, finding out where this money is going is actually very easy.
Budgeting apps like Mint allow you to link directly to your bank accounts, categorizing your spending for you. They will even show you where you can save. Budgeting won’t solve your debt problem, but it can make it much easier to carry, and prevent your debt from continually getting worse.
Assess your lifestyle
Ask just about anyone struggling with debt and they will tell you they are spending as little money as possible. Yes, they could technically spend less on entertainment and outings, but life needs that kind of stimulation.
However, if you actually assess your lifestyle, you might find that certain factors are losing you money. One of the most common problems is food wastage. Americans waste a tremendous amount of food every year, and it is understandable. Trying to buy the exact amount of groceries and use them before they expire is extremely difficult.
But it is not impossible. By meal planning every week, you can buy the groceries you need specifically for that week. You will save money on food that would only end up in a dump.
Other lifestyle changes can include buying store-name brands, having joint dinner parties instead of going out for expensive meals, and actually budgeting your disposable income.
Rethinking insurance plans
Insurance is a necessary evil. Unfortunately, the US insurance industry is heavily stacked against consumers. If you don’t have health insurance, you won’t be able to get help when you need it, but even with health insurance you are left with significant deductibles and copayments.
Much of the time, you don’t have much choice. However, it is worth doing the math on your insurance plans. Calculate how much you are spending each month and compare with other plans. In some cases, you will find that what you are insuring is not worth the monthly payment at all.
All of the above methods will help you reduce your debt. There is no easy way out of the debt cycle, but small steps will at least get you started.