10 Things You Must Do Immediately If Your Debt Reaches $10,000
It’s almost impossible in life not to incur some amount of debt. Sometimes, when cash flow is inconsistent or simply not enough to pay for the things you want, it’s easy to find yourself paying for things with credit cards or even taking out small loans that can add up quickly over time. A small amount of consumer debt (not including things like school debt or medical debt) can be manageable, but by the time most people have accumulated $10,000 in debt, paying it back can become a burden and a challenge. Rather than panic, experts have weighed in on things you should do immediately if your debt reaches $10,000.
I’m a Financial Planning Expert: Here Are 5 Things You Should Never Spend Money on If You Want To Be Rich
See: Demand for Gold Is Up – Here’s Everything You Need To Know
Identify the Cause
Before you start making plans to tackle your debt, the first step is to identify the cause of your debt, so you can be sure not to repeat the same mistakes, according to Todd Christensen, author of “Everyday Money for Everyday People,” an AFCPE-Accredited Financial Counselor® and HUD-certified housing counselor at www.DebtReductionServices.org.
Then you want to be strategic about your payment options. “Some of your options may actually lead to making things worse if you’re not careful…Otherwise, you’re treating the symptom-the debt-without treating the cause.”
For example, your options for $10,000 of medical debt will be different from your options for $10,000 of credit card overspending on consumer purchases, he explains.
Create Barriers to Ongoing Consumer Spending
If your debt was a result from overspending, Christensen said to consider making it harder to spend money by doing the following:
Set up a separate spending account from your bill-paying account. Do not connect the two electronically and do not get a debit or an ATM card for the bill-paying account. Create a direct deposit from your place of employment so that the only money you can spend is the money in your spending account.
Work with a 501(C)3 nonprofit credit counseling agency that belongs to FCAA or NFCC to both improve your repayment terms while also closing your credit card accounts to future usage while on their debt management program.
If your debt resulted from non-consumer spending, consider the following:
A home equity loan or home equity line of credit
Contact your credit card companies to request a lower interest rate.
Send extra payments to your account with the highest interest rate first while sending minimum payments to all other debts.
If your goal is to rebuild your credit as quickly as possible, focus your extra payments on your newest account first. Credit scoring models weigh payments on new accounts more than payments on older accounts.
Read More: Mark Cuban Says This Is the No. 1 Thing To Do To Build Wealth
Make a Budget
An important step in managing debt is to create a budget, according to Georgia McKenzie, founder and CEO of Switch on Business, which specializes in helping companies get the most out of their investments. “This will help you track your spending and see where the money is going. It will also help you prioritize which debts need to be paid off first, so that you can focus on those before tackling the rest.”
Review Your Credit Report
You should also pull your credit report to see what creditors are reporting on you, she said. “There may be items on the report that need to be disputed, which could help improve your score and lower your debt.”
Contact Creditors
Once you know where your debts stand, contact your creditors to see if they are willing to negotiate a lower interest rate or other favorable terms, McKenzie recommended. “If not, you may need to look into debt consolidation or refinancing options.”
Cut Expenses
Cutting expenses is crucial when aiming to tackle a $10,000 debt, said Ismaiel Mansoor, a financial advisor. “Start by scrutinizing your monthly budget and identifying areas where you can make substantial savings. Reduce discretionary spendings such as eating out, entertainment, or shopping. Also, consider negotiating lower bills for services like cable, internet, or insurance. By redirecting the money you save towards debt repayment, you can accelerate your progress and free up more funds to eliminate your debt sooner.”
Do a Balance Transfer
A balance transfer entails transferring your high-interest credit card balances to a card with a lower interest rate, Mansoor explained. This strategy allows you to focus on paying off the debt without accumulating additional interest charges during the introductory period. “Be mindful of any balance transfer fees and ensure that you can repay the balance before the promotional period ends to maximize the benefits of this approach. Consider the terms, fees, and potential impact on your credit score before opting for either of these options.”
Leave Your Credit Card at Home
Don’t let a credit card tempt you to overspend while you’re away from home, instead leave it behind, urged Jeffrey Zhou, the co-founder and CEO of the financial lending company Fig Loans. “With over $10K in debt, you need to focus your efforts on reducing that load ASAP, which means avoiding overspending and only buying with the money you have now rather than a future promise to repay.”
He recommends you simply take your credit card out of your wallet, even when you’re buying essentials. “Take out cash to pay for groceries or set a strict spending limit. While this might force you to choose between products, it can help you prioritize what you need most and leave behind the extras you don’t.”
You don’t have to get rid of credit cards forever, just until you pay down your debt and reset some of those spending habits.
Seek Professional Help
If your debt is overwhelming, it may be time to seek professional help from a credit counseling agency or debt relief company, McKenzie said. “They can work with you to create a plan for paying off your debt and will provide the support and guidance needed to stick to it.”
Consider Bankruptcy
If all else fails, bankruptcy may be necessary, McKenzie said. “It can provide you with a fresh start, but also has serious consequences. Make sure to research and understand the process and its implications before making any decisions.”
More From GOBankingRates
This article originally appeared on GOBankingRates.com: 10 Things You Must Do Immediately If Your Debt Reaches $10,000
