When facing uncertainty about the economy, it is essential to get your finances in order. And this includes getting out of debt. Due to the Covid-19 pandemic, many people lost their source of income. As a result, they are taking on more debt. As you probably know, debt is is the most stressful financial obligation for many. High-interest debt, in particular, can keep you buried in bills that outlive the original purchase. So, this article will shares some tips on how to reduce your debt during this pandemic. As you apply these tips, dedicate your energy to paying off debt so you can free up more money for investment.
1. Refinance your debt
If you are keeping a money diary, you most likely know the sources of debt and the corresponding interest rates. The pandemic has given you an opportunity to reach out to your lenders. This is because many creditors are willing to offer their customers a break on repayment. Also, some banks offers relief for customers and this includes fee waivers, deferred payments and credit line increases. Please note that this is not an excuse to take on more debt.
With the pandemic comes another silver lining. Most interest rates are at a record low right now especially for mortgages. If you have a debt with a high interest rate, you should consider refinancing for a lower rate. This applies to credit card debt.
2. Pay more than the minimum amount
The minimum amount that creditors charge you for each billing cycle is usually only a portion of the amount you owe and a percentage of interest. If you only pay that amount, you will end up paying quite a bit more over an extended time. However, if you pay more than minimum, you will pay off the loan faster and not spend as much on interest. This decision will help cut down on the interest you pay each time and shorten the lifetime of the loan.
3. Cut down your expenses
With the different work-from-home and social distancing measures, many people are saving money on transportation costs and spending less on entertainment. Overall, your discretionary spending is probably down right now. So, continue to trim down your budget as much as possible. In addition, implement smaller changes that can have a significant impact like making coffee at home, cooking at home, canceling subscriptions you don’t need and opting for the generic brands at the grocery store.
Right now is the best time to cut out unnecessary costs and decide really what is necessary and what is not. Even if your cash flow is improving, re-evaluate your expenses, pay down debt, build an emergency fund, and build your saving account.
4. Have a financial strategy
Create a specific strategy for how you will pay off each debt. A good financial strategy will help you to be mindful of how you are prioritizing your money and thereby increases your chances of success. One of the most common strategies for eliminating your debt is the snowball method. This means paying off the smaller debt first until you finish paying everything. It will feel productive to knock out the easier debts, simplify your bills and build momentum to continue saving.
5. Find a way to earn extra income
Finding ways to earn extra income can help speed up the debt payment process. Now that you are spending more time at home, you may have noticed some clutters than you don’t really need. You can sell these items at a garage sale or on sites like Facebook Marketplace, eBay and Kijiji. You can also try starting on a side hustle. This can be something built around a skill you have. If you don’t have an idea of how to go about this, you can check out these businesses you can start with little or no capital.
This allows you to make money with a hobby you already do for fun. Picking up an extra job with a delivery service like Uber, Instacart or DoorDash is another practical option. These companies have more work than ever and are pretty much always hiring. It’s also usually a flexible job that you can manage during normal working hours or whenever you have free time.
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