Everyone’s looking forward to a new year. While it looks like things aren’t going to change right away in 2021, there’s a light at the end of the tunnel, and people want to be ready to meet it by getting over some of the financial challenges they faced in the past year.
People who have had their incomes interrupted, who owe back rent, or who have built up debt to make it through the last year are looking for ways to pay it all back. Some are even worried about having to pay back benefits they received that they weren’t eligible for. Even once you get back to work, it can be a struggle to pay back debt, as you’re still keeping up with ordinary expenses.
But when you only make minimum payments, you’re being strung along and charged as much interest as possible. You need a plan to get your debt behind you. Try one of these 5 strategies in 2021.
#1 Build a Budget
When you want to budget your way out of debt, you have to calculate what you owe and make a plan to pay it off. Take your monthly income and subtract your monthly expenses. If that’s what you put toward your debts each month, how long would it take to pay it all off, including the interest?
If that timeline isn’t acceptable, it’s time to find a way to either increase your income or cut more expenses out of your budget.
#2 Debt Consolidation
Debt consolidation can be a great way to reduce the cost of interest on your debts. By reducing or eliminating interest rates, a Debt Consolidation Plan helps you stretch your money further. It means that more of your money is going straight to the principal rather than paying interest charges. Talk to a certified Credit Counsellor from a non-profit credit counselling agency about how a Debt Consolidation Plan works.
#3 Pay Balances Strategically
Every time you finish a balance, that’s less interest you have to pay. While you have to keep up with all your minimum payments, it makes a lot of sense to knock debts out one at a time.
#4 Earn More
Earning more may be easier said than done depending on your skills or the industry. But if you can make it work, it may be worthwhile to retool your skillset to adapt to the post-COVID workforce.
Certain industries have been hit so hard that it will take them years to recover. Retraining could be the best thing you do for your personal finances.
#5 Balance Transfers
With a balance transfer, you move a balance from one high-interest credit card to a new card with zero-percent interest rates. It can give you some breathing room and help you make progress in a significant way.
But you have to watch out. Usually, those zero-percent interest deals have an expiry date, and if your balance isn’t paid off by then, you could end up right where you started.