Debts and Stress

Does the stress from your credit card debt and other bills wake you in the middle of the night? Working with consumers over several decades provided a real-life view of what keeps people up at night and causes unnecessary worries, health issues, and fatigue. I had options for those seeking a home equity loan or a mortgage to provide the solution to reduce their rate and consolidate their debt, and their monthly terms for homeowners. Not every homeowner wanted to consolidate their credit card, auto loan, and student loan debt and create a lien against their property. They wanted alternatives. Not every person with debt is a homeowner.

It is important to know what you are in control of. You are not in control of the rising costs of your utilities, food, real estate taxes, or insurance. Focus on what you are in control of. Review your monthly budget and include your income, debts, and other expenses. Those birthdays and holidays and the cruise you are taking next year fall into additional categories of your budget.

I realized a one-size-fits-all approach was not the answer and I gladly provided options for them to consider. My goal was not to complete a mortgage application but, to figure out alternatives best for them. It was time-consuming. I did not always receive a paycheck after we met although I felt my focus was to do the right thing for people. Take a look at your expenses. Open your credit card statements and bank statements. Reviewing a paper statement is fine. If not, you can review the statement online. You may want to print off the current statement as a reference. There are four primary things you will want to consider when paying off debt. The balance/principal, the monthly payment, the interest rate, and the total amount spent when you pay the debt off. This is readily available on your credit card statement. Look at the total amount you will pay in principal and interest if you make only the minimum monthly payment. It will astound you. No wonder you can't sleep!

An option is to consider contacting the creditor to lower the rate or shut down the credit card account while you pay it off. When you receive a letter from a creditor informing you they are increasing your credit limit, call them back and say, 'No thank you!' Reducing the number of credit cards is to be considered. Do you need a credit card for every store? Too much credit can prevent you from buying another home, getting a car, or paying higher interest rates due to a low credit score.

Like my mortgage clients, you have homework to do. Write down the four terms and conditions of the debt or enter the data in an Excel spreadsheet. Keep it accessible. Hold yourself accountable and pay the debt on the same day each month. You may want to find an accountability partner for this exercise. There are a few ways to tackle this problem. One is to start with the lowest debt amount and knock it out quickly. Next, focus on arranging the debts from smallest to largest. Look at the interest rate and term. Schedule a term for payoff such as 90 days or 12 months. Once the debt is paid, apply the monthly payment to the next debt until the goal is reached. This will leave you with a sense of pride in your accomplishments. This is a compound effect or some refer to it as a snowball effect. Dave Ramsey of Ramsey Solutions has a great program for this. The payments to pay off the remaining debt(s) grow larger in time while accelerating the payoff.

The other, less preferred plan of attack is to focus on the highest interest rate and work in the opposite direction until the smallest account is paid while applying each monthly payment from the last paid debt to the next - stacking the monthly payments and applying them to the new debt in the same fashion as the first option. You can also use debt calculators online to give you some ideas for the payment and terms to help your process. Once you have obtained your desired goal, it is time to focus on savings and investment opportunities. Other benefits are a full night of rest, less stress on your heart, and a higher energy level to accomplish your daily schedule the next day.

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