If you’re feeling overwhelmed by debt lately, rest assured you’re not alone in this experience. In fact, the average U.S. household carried more than $16,000 in credit card debt in 2016. This represents a 10 percent increase in a decade—a trend that’s expected to continue as we move further away from the recession. So, having debt by no means makes you an anomaly. Nonetheless, it can be stressful and even feel shameful to carry debt.
But there’s good news: Owing money is by no means a financial death sentence. After all, financial health is an ongoing journey. Here are a few tips to help you get started.
Taking Stock of Your Financial Situation
You have to walk before you can run. Before you can tackle your debt, you have to understand it. This can be very challenging, as it involves facing your debt head-on and even peeling away layers of debt denial. It’s also important at this point to take a metaphorical magnifying glass to your spending habits. You’ll need to find ways to save down the line so you can reallocate more of your income to paying down debt.
The truth is, overspending can occur whether you make minimum wage or a six-figure income. The first step? According to one financial planner for CNN: “Have the courage to take a look. A lot of people don’t want to; it’s scary sometimes and numbers aren’t people’s favorite.”
If you’ve been avoiding answering your phone or opening your mail because you dread collection notices, plan to sit down and get caught up. While you may experience nerves at first, you can take solace in the fact that you’re empowering yourself to take back control of your financial destiny. That’s something to celebrate, even if it occurs in baby steps.
Come Up with a Game Plan
Now it’s time to decide whether it’s more prudent to pursue debt repayment on your own or utilize a more formal debt relief solution. Your choice will boil down to factors like the type and amount of debt you carry, plus your income and lifestyle needs. Some people are able to overhaul their budget in order to pay off debts faster. Others benefit from taking a more structured approach in which they have access to trained professionals.
People with $7,500 or more in debt may choose to enroll in an option like debt settlement. This strategy aims to negotiate down how much you actually owe using trained negotiators. Consumers pay into an account in order to build up enough money for these negotiations. Like any potential solution, consumers should research debt settlement in general, as well as specific companies. Learn which companies have a proven track record of helping consumers by looking up proprietary terms like “Freedom Debt Relief reviews.” These types of programs require months or years to work, so make sure you’re prepared to commit before signing up.
Sometimes Debt Is Productive
Did you know there’s actually “good debt” and “bad debt”? Some debt helps you create value and achieve life milestones. Mortgages and student loans are two prime examples of potentially good debt—although they, too, can become overwhelming. But the end result tends to add value in the form of real estate or higher earning potential.
Bad debt, on the other hand, goes toward purchasing things that lose value. Unsurprisingly, credit card debt falls under this umbrella when it goes toward buying non-essentials. If you’re carrying non-productive debt, address this first. Credit cards also tend to come with high interest rates, making outstanding balances even more dangerous.
Owing money isn’t a financial death sentence, but consumers should do everything they can to keep debt levels low or non-existent, especially when it comes to “bad debt.”