There you were, paying down your financial obligations right on schedule. You could predict the amount of money you had coming in and going out, enabling you to send a specific sum to your creditors. Then the cost of goods and services started to rise. And inflation hasn’t stopped. In June 2022, the U.S. Department of Agriculture Economic Research Service reported the all-items Consumer Price Index increased by 1.1% from April 2022 to May 2022, up 8.6% from the year before.
Now you’re not only paying more for the things you need, but you also have less leftover for your debt payments so are not driving your balances down as you had intended. Don’t despair. While you have no control over the economy, you have a lot of control over your budget. Here are a few strategies to help you get back on track.
Transfer your balance to a new credit card
If you have good credit, you may qualify for a balance transfer credit card that comes with intro 0% APR for a specific number of months. You can shift the debt you carry on existing cards to the new card, and no interest will be added during the introductory period. The entire amount of your payment will go toward the principal, saving you money. It will likely cost you a balance transfer fee of somewhere between 3%-5% of the balance, but in the end you could come out significantly ahead.
For example, imagine your credit card balance is $5,000 and the APR is 26%. If you determined that you could pay $500 every month it would take 12 months to be debt free, with a total interest charge of $654. But if you were to have that debt transferred to a card featuring 0% APR for 12 months you could save yourself the cost of interest charges which can help you make ends meet during a time of inflation.
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Request an interest rate reduction
Another option to pay less in financing fees is to stick with the original credit issuer but ask for a reprieve on the interest rate. Maybe you have made your payments on time and in larger increments than were expected. In that case, you have probably established an excellent reputation with that lender. Check your account to see what the interest rate is now. If it’s high, get on the phone and ask if they will lower it for you. Point out what an excellent customer you are and what your intention is. Odds are they want to keep you as a customer so may be willing to lower the rate.
Consider credit counseling
Nonprofit credit counseling organizations are dedicated to helping people get out of high interest debt, quickly and efficiently. It begins with a usually free first session with a financial counselor who will review your entire money and credit situation. Your counselor will then suggest a Debt Management Plan (DMP) if you qualify, and it makes sense for you. Many creditors have agreed to reduce or even waive their interest rates for participants, saving you money on fees. You would then make one affordable payment to the agency which will disperse it to your creditors.
DMPs are arranged for you to be out of debt within three to five years, so if that’s your goal, it’s worth exploring. Another advantage is that you don’t have to have good credit, since these plans are generally designed for people who are already struggling. Contact the National Foundation for Credit Counseling to find an accredited agency in your area.
Temporarily suspend savings
Perhaps you’ve been trying to do it all: add money to a savings account as you’re paying down debt. Although it is important to establish an emergency fund and set money aside for future plans, inflation may be cutting into the cash you have for both. If one thing has to give for a while, consider suspending your savings charter rather than cutting back on the money you send to your creditors.
Adjust your spending
When was the last time you reviewed your budget? If it’s been a while, do it now and start to trim where you can. You may be able to make some simple changes that will offset higher prices and enable you to keep up with your debt payment.
Take a look at everything you are currently spending your money on and consider where you can reasonably cut back. For example, if your monthly grocery bill has grown from $600 a month to $700 a month because those costs have increased, see if you can make it up by reducing $100 from other expenses. If your budget includes extracurricular activities that aren’t truly necessary, pare down. When you are back in the black, you can readjust your spending so it’s not quite so restrictive.
If credit cards are a part of your lifestyle, it’s also healthy to evaluate whether your cards are best matching your current needs. For example, a grocery credit card could be a smart way to help you pocket rewards on unavoidable expenses. Gas credit cards are also valuable options in today’s current climate.
Add to your income
This option may not be available or attractive to everyone, but consider all the ways you can increase your cash flow. Depending on your skills and interests, you may be able to run errands for a neighbor, walk dogs, take care of children, drive for a ride sharing or delivery company, or tutor in a subject in which you have expertise. Search online job boards for temp work and gig opportunities.
Approach this method knowing it is for a short time and that it will put you in a powerful position to get out of debt when you want. It’s good for when you don’t want to (or can’t) reduce your budget. The more money you make, the more you can add to your debt, even as costs are rising.
Sell items you don’t need
If you’re like most people, you have at least a few things laying around your home, yard, or garage that are just collecting dust. This is a perfect time to review everything that you own and purge unnecessary, unwanted items that have value. You can sell them with an old-fashioned yard sale, or put them up for sale online.
One of the best places to focus your attention on is electronics. Plenty of people have older versions of their cell phones tucked away in drawers. For example, if you’ve upgraded to the latest iPhone and have your old iPhone X that’s still in good condition, according to decluttr.com it’s worth nearly $200. Whatever the case, use the proceeds to add to your debt. The extra money can soften the blow of higher prices.
No one knows exactly how long the spike in inflation will continue, or how high the cost of key goods and services will go. For this reason, it’s best to take swift action. Because one thing you know for sure: when you pay interest on consumer debt, you are already losing money. Therefore, the faster you get rid of them, the sooner you will be in a better financial position, no matter what happens to the economy.