How To Manage Debt And When To Ask For Professional Help

Dealing with debt is a daily struggle for a huge number of Americans and the global COVID-19 pandemic has done little to assist those already feeling overwhelmed by their situation. 

According to a recent study on American Consumer Debt, not only do more than 189 million people in America have credit cards but, of those people, only 65% have credit on their credit cards. The study found that, in America, credit card debt accounts for 26% of the total debt in the country. This is a huge figure and one that is only set to rise should the economy not see a boost soon. 

Fortunately, there are ways that Americans can deal with their debt so they can rest assured that they don’t carry it into their retirement years. 

Create an Emergency Fund

Many Americans feel that making the biggest possible payments on their loans from the get-go is the best way to tackle their debt issue; however, should an unexpected event occur, having no money to be able to deal with an emergency can make your debt situation even worse. The best way to avoid this is by creating an emergency fund that can act as a financial buffer should something unexpected happen, such as a car breakdown or a burst geyser in your home. 

This fund should be separate from a person’s daily account and should preferably be a savings-style account so that the money can start accruing interest. The funds in this account should never be used for day-to-day spending and should be used only when extremely necessary. 

Draw up a Minimum Needs Budget

While many Americans try to stick to a monthly budget, it is easy to overspend and end up short come time to pay the bills due to unnecessary spending. Creating a minimum needs a budget that includes only the most basic living expenses and eliminates all non-essential spending, can give a struggling person a better idea of exactly how much money they need to live so that they know how much they will have leftover for paying off their debt. 

Bills that cannot be excluded from this budget include rent, utilities, and groceries. Other costs, such as payments for pension plans and other investments, should also be included. 

Drawing up this budget can also give a person more clarity on where they can improve on their monthly spending and even give them ideas about how to lower their existing bills. If a person is finding that their average grocery spend is too high, then they could explore couponing options or loyalty program rewards at stores they do not usually frequent.  

If a person’s debt is completely overwhelming, then it may be time to look ahead to future solutions to the problem, especially if a person is nearing retirement age.

Explore Your Pension Plan Options

Cash balance plans, unlike traditional pension plans, involve the creation of a notional individual account for each employee covered by the plan. This means that each employee, upon retirement, will receive a specified lump sum that that employee can choose to receive or select a monthly payment instead. This lump sum can be seen as a great way to eliminate any lingering debt that a person may have accrued during their working career and can help a person start their retirement on a good note.

To calculate the value of a cash balance plan, there are many cash balance plan calculators available online that can assist. Companies such as Saber Pension & Actuarial Services, a premier Defined Benefit actuarial firm and third-party administrator, can provide the tools you need to assist in calculating your contribution limits for both traditional and cash balance defined benefit plans and provide a cash balance plan calculation. You can find Saber Pension’s handy tool here which should help to make the process easier. 

Should a person feel like they are not making any headway with their debt, then it is often worthwhile for them to seek professional help in dealing with the issue. 

Consider Getting Professional Help

Managing debt can be a complicated matter and sometimes the help of an expert, such as a credit counselor, can assist a person who is struggling to cope with their monthly payments. 

To draw up a debt management plan, a credit counselor will assess their client’s financial circumstances in order to give them advice on how to resolve their debts. They can also negotiate with their client’s creditors on their behalf to waive future late fees that may be incurred while payment schedules are being adjusted. 

Some debt management companies offer their clients a way to consolidate their debt into one monthly payment, payable to the debt management company, in order to cut down on transaction costs. The client will then pay the debt management firm instead of all their creditors and the firm will then pay the creditors on behalf of the client. Often this results in lower interest rates on payments, which can help in the long run. 

While paying off debt may be a stressful and long process, there are ways that people can minimize the impact it can have on their daily lives. Having a solid debt payment plan can go a long way in assisting in this process.