We asked the AARP Foundation’s MySavingsJarTM community members how much debt they have right now and 40 percent answered “a good amount and it feels like it’s too much.”
What’s more, 37 percent reported they feel occasionally stressed about money, with 40 percent saying it feels like they are stressed about finances every day. Can you relate?
Most of us can, given America’s current dependence on credit. For some of us, the warning signs that we have too much debt sneaks up on us slowly until we can’t avoid lying awake at night with worry.
There’s no doubt that drowning in debt feels overwhelming, especially when you’re already living on a limited or fixed income. But by making a plan and sticking to it, you can begin to turn your financial situation around. Really.
First things first. Start by choosing a payment plan method that works best for you. We’ve outlined the two most popular ones recommended by financial experts below.
Build Momentum with the Snowball Method
With the snowball method, you focus on eliminating your smallest debts first. Just like a snowball picks up size as it rolls downhill, your sense of accomplishment builds with this approach, motivating you to keep paying down your debts.
Here’s how it works:
Reduce the Interest You Pay with the Avalanche Method
With the avalanche method, you focus on paying off the debts with the highest interest rate first. From a mathematical viewpoint, paying off high-interest debts decreases your overall amount of debt. That feels good too, but it takes a longer-term approach to eliminate a larger debt, which can affect your motivation.
Learn more about both approaches — and why some people combine methods — here.
What About Debt Consolidation?
If you’re been struggling to pay off your debts for a while, you may have noticed advertisements for loan consolidation where you can combine your debts and pay them off with one monthly payment.
There are some red flags to watch out for with debt relief scams. Scammers typically ask you to pay up front before they settle any debts with your creditors. Be wary of companies promoting a “new government program” or offering guarantees to reduce your debt by a set amount.
Reputable companies may charge for their services, but can only collect from you once you see results. Plus, they tend to offer financial counseling on budgeting and money management, oftentimes at no charge.
To find free or reduced-cost financial counseling services in your area, visit the AARP Foundation’s Local Resource Directory, search under Money, Financial Education, Credit Counseling. You don’t have to be an AARP member to use the directory.
AARP also offers a free Personal Debt Consolidation Calculator you can use to determine if this option is right for you.
Finally, Money Management International is another nonprofit that offers free credit counseling services where you can learn about possible debt management plans. If you qualify under the U.S. Department of Health and Human Services poverty guidelines, you may be eligible to receive a fee waiver for the debt management plan’s one-time set up fee and monthly plan maintenance fee.
It (ahem) pays to do your research.
Get By With a Little Help from Your Friends
Remember, you’re not the only one struggling to pay off debt, especially now that America is experiencing record unemployment from the COVID-19 crisis.
In addition to getting financial advice from trained counselors, ask your friends and family how they approach paying down their debt. In addition to new ideas, you’ll get much-needed emotional support as you begin your debt reduction journey.
“I am retired and living on a fixed income. I have sat down and listed my monthly expenses and have found ways to save at least 10% of my monthly income. I am doing this by changing my spending habits. I am now spending less on “wants” and focus only on “needs”.— MySavingsJar Community Member
“I am retired and living on a fixed income. I have sat down and listed my monthly expenses and have found ways to save at least 10% of my monthly income. I am doing this by changing my spending habits. I am now spending less on “wants” and focus only on “needs”.
Like the person above, you can also connect with other people facing the same challenges you are when you join the MySavingsJar community. Ask questions, share your success and feel empowered to tackle your debt one simple step at a time.
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