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Business Tips

What to do When you’re in Debt

Debt is a part of life. According to Business Insider, the average American has over $50,000 in total debt, although the average amount varies according to location and age. It’s easy for this debt to feel as though it’s getting out of hand, and that you’re unable to get out of it.

However, you can turn your finances around and improve your situation. Even if you can’t eliminate all of your debt right away, you have options. Here are some suggestions that might help you.

Assess Your Debt

The first step to dealing with your debt is to figure out how bad it is. There are four stages of debt, each with a different solution:

  1. You have no debt, keep up the good work.
  2. You have debts, but you aren’t concerned about them and can comfortably pay them off while having some spending or saving money.
  3. You can just about pay your debt off at the minimum level, but you’re strained.
  4. You can’t afford to pay off your debts, they are larger than your income.

If you are in the first two situations, then your financial situation is fairly healthy. You’re either completely debt-free or in a comfortable position to pay them off without worrying.

If you’re in the third situation, you do have issues and could be going down a spiral of borrowing to maintain your lifestyle. But the fourth situation is a debt crisis, where all of your income is essentially going into your debt and essentials and it still isn’t enough. Thankfully, there is usually a way out.

Manage Your Debt

Now that you know what your situation is, you should evaluate your spending habits. Work out a budget, and it may need to be strict if your debt is worrying. Write down everything you spend in a month and figure out what you can cut out. In the most extreme cases, you may need to cut completely down on non-essential items until your debt is under control.

When going over your spendings, look out for some money pits. For example, unused subscriptions and paid services are a waste of money and you should cancel them as soon as possible.

Even with necessities, planning is your friend. Make a food plan and cut out impulse buying completely. Buy only the food that you plan for. Take a calculator when you go food shopping to make sure you stick to your budget.

As for dealing with your debt directly, you may be able to speak to your mortgage provider and ask for assistance. They may be able to switch you to an interest-only mortgage, for example. Some credit cards allow you to shift debt onto them at a lower interest rate, which may provide you with some breathing room.

If no matter how hard you try, your debts get too much for you, you do have the option of applying for bankruptcy. This isn’t the perfect solution, but it can give you a fresh start. Click here to learn more about how it may help in your situation.

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