How to Avoid Falling Behind on Debts

Most people have some kind of debt they’re responsible for paying back every month, such as a home loan, car payment or credit card bills. If you find yourself unable to pay your debts, you could risk late fees, damage to your credit or even losing your home or vehicle if you can’t get back on track. 

There are ways to help keep your head above water when it comes to managing everyday bills, essential expenses and debts. Keep reading for some ideas that can help you take control of your finances and avoid falling behind on your debt payments.  

Figure out what you owe 

The first step is to get very clear about your debt. Open up a new spreadsheet or get a piece of paper, and write down all your debt information, including:

• The total amount
• The lender
• The rate of interest or annual percentage rate
• The minimum payment due each month
• The payment due date

Confronting every detail of your debt could be difficult, but having this information in one place will make it easier to come up with a strategy for staying on top of what you owe. 

If this exercise makes you feel like your debt is too overwhelming to manage on your own, you might consider consolidating it with a new personal loan from a bank, credit union or online lender. However, you’ll want to do your research and fully understand the pros and cons of debt consolidation.

Debt consolidation lets you roll pre-existing debts into one fixed monthly payment, optimally with a lower interest rate than you’re currently paying. But depending on the length of the repayment term, you could end up paying more interest in the long run. You’ll have to decide if the convenience of lower monthly payments in the short term is worth the extra cost to your budget over the long term. 

Be strategic about your spending 

If you have debts, you’ll want to create a very detailed budget to keep your spending in check. List out all your bills and expenses for the past few months to get a clear picture of where your money has gone. You could even break down your budget into different categories, such as food (groceries and dining out), household bills (utilities and rent or mortgage payments) and other bills or debts (car payments, student loans and credit card bills). This way, you can see how your spending compares across categories. 

There are several different ways to budget: 

• 50-30-20 method: 50% of your income goes toward needs, 30% goes toward wants and 20% goes toward savings. 
• Zero-dollar method: Assign every dollar of your income to a specific role — paying bills, ordering takeout, emergency savings and your retirement fund — until you have zero dollars left each pay period. 
• Envelope method: Pay off your larger bills — rent, mortgage, utilities and any loan payments — through your bank account. Then, allocate cash in envelopes for expenses like groceries, entertainment, morning coffee and dining out. The cash in each envelope is all you can spend on that purpose for the month. 

Reevaluate your budget periodically and make changes as needed. 

Choose your debt repayment strategy 

Finding a debt repayment strategy that works for you is a big part of staying on top of your payments. There are two common methods: 

Debt snowball

1. Pay off your smallest debt first, followed by the next smallest debt. 
2. Use the money you’re saving from paying off the first debt to make larger payments on the second debt. 
3. Continue this cycle until your debts are paid in full.  

Debt avalanche

1. Pay off the debt with the highest interest rate first. Once you’ve paid off that debt, do the same for the debt with the next highest interest. 

2. Use the money you’re saving from paying off the first debt to make larger payments on the second debt. 

3. Continue this cycle until your debts are paid in full.

Remember that no matter which option you choose, you’ll still need to continue making at least the minimum payment due on your other accounts.

Each method has its pros and cons. With the debt snowball method, you could take care of multiple debts quickly, which might be good motivation. On the other hand, the debt avalanche method could make a more significant dent in your debt more quickly and help you pay less interest over the life of your loans. Choosing a method really depends on what works best for your budget. 

Work with your lenders to find a solution 

If you feel that you can’t keep up with your debt even after budgeting, reallocating your income and choosing a debt repayment strategy, you might reach out to your lenders. Some lenders will work with you to lower monthly payments, waive late fees or extend payment due dates, depending on the situation. 

If you need additional support, you might reach out to a financial advisor or counselor. Someone with professional financial experience could help you tweak your budget and advise you on the best way to tackle your debts before they get out of control.

Take control of your finances 

Managing debt isn’t easy, but there are ways to make it more doable. Figure out exactly what you owe, create a detailed budget, choose a debt repayment strategy and, if necessary, work with your lenders to find a solution. Don’t be afraid to look for support along the way — having secure and stable finances is worth the effort.