The Kiplinger Report stated that there is now over $4.05 trillion in American consumer debt. About 25 percent of all Americans admit their debt is larger than the money they have saved for their retirement.
The statistic that really made the mainstream media begin to report the truth about the staggering level of debt in the American economy is the one about auto loans. According to Fortune Magazine, as of February 2019, a record 7 million U.S. citizens have fallen 90 days or more behind in their auto loan payments. This means that many are in danger of repossession. Most people need their cars in the U.S., so this is a sign of dire economic times ahead for many citizens.
At Punch Associates, a firm that has solutions for consumers and small business owners in heavy debt, we are often asked how people can escape the debt dilemma. The answer factors in each type of debt. The following addresses the issues of consumers with heavy debt they are struggling to pay off.
Create a Budget
Not enough people have a monthly budget. You need to take into account all of your debts, how much is owed on each and the interest rates they carry. You also need to take stock of all of your bills and expenses, both monthly and long-term bills, like auto registration and auto maintenance expenses.
The goal is to see how much you can devote to paying down your debt each month. It is best to pay off the credit card with the highest interest rate first before you attack the next debt with the next-highest interest rate.
Reduce Extraneous Expenses
Now is not the time to buy a daily Starbucks, and the television subscriptions are really unnecessary. It is time to pare down and get back on your feet.
How to Handle Specific Debts
Credit cards: According to The Medium, credit cards often carry double-digit interest rates and need to be paid down first. If you can get your issuer to lower the interest rate, it would give you more breathing room and allow you to make greater payments to reduce the principal.
Student loan debt: The solution is different if you have double-digit student loans from private providers, or if you have government-insured loans at around 6 or 7 percent. If you have the former, you will need to consider a personal debt consolidation loan in order to get that interest rate down to a level that allows you to attack the principal.
Those with government-insured student loans may still need to apply for forbearance or income-driven assistance with payments. There are many more options to reduce your government student loan payment today. Many are income-driven options.
Medical debt: Nerdwallet suggests that you need to work with the medical facility’s billing department as soon as you receive your bill. Don’t wait until they have sent the bill to collections. They usually have zero- or low-interest options for you, like extending you a payment plan, reducing your bill or allowing you to use a medical credit card with zero-percent interest for up to two years. Ensure that your insurance covered their fair share and that the medical facility did not over-bill you.
Auto loans: Nerdwallet recommends that if you only are one payment behind with your auto loan and have a good reason, your lender will likely defer the payment until the end of the loan. They might waive the interest charge or penalty as well. If you can no longer afford the payment, you will need to either trade the car in for something less expensive or consolidate your other debts along with your auto loan, if other debts carry high-interest rates.
Loan consolidation: If you just can’t make the payments any more by limiting expenses, it is time to consider if loan consolidation with a personal loan for three to seven years at a lower interest rate will help your situation. That will help you get out from under high-interest rate fees, so you can pay down the principal in a timely manner.
Bankruptcy: Some people may need to consider bankruptcy, but it will affect your credit for seven to ten years, and it costs money to initiate.
At Punch Associates, we have solutions for consumers struggling under heavy debt loads. Call us today