The surge of the pandemic has impacted the personal finances of many around the world. In some cases it has become a challenge for people to continue with the payment of their debts due to the loss or collapse of businesses, the increase of the unemployment, or individual situations; in summary, the income of many people dropped sharply since 2020.
The Bureau of Labor Statistics (BLS) reported that in January 2021, 14.8 million people reported that they had not been able to work because their employer closed their business or lost business due to the pandemic, that is, they did not work at all or worked fewer hours than usual.
In addition to this type of situation, the fear generated by the media, indirectly affects decision-making and produces confusion to keep or plan an organized financial life.
In most of these settings, there has been little preparation and ability to react to low income situations. Financial training or discipline is not very common, so keep in mind that at Premier Consumer Credit Counseling we have a section of educational articles focused on financial education and that our team of experts can also provide support and advice on the proper management of debts.
Due to the above reasons, this article intends to share some actions or alternatives that you can take into account to identify which debts you may pay first.
Learn to prioritize. The first thing is to focus on cost reduction in order to be able to designate economic resources to the payment of debts, especially those of financial institutions, where interest are high and debt increase when presenting default situations due to late fees. A detailed analysis of the budget must be made, in Excel tables and even making a list with pencil and paper, leaving only the basic expenses in each period, since everything that is going to be saved will be used to pay the obligations.
Pay off your smallest debts first. A very effective method that generates a sense of achievement and tranquility to a certain extent is to pay debts from the least amount owed to the greatest. As the smaller debts are being paid, it feels like you are moving towards the goal of getting out of all the obligations. Which in turn provides the emotional effect of an early victory.
This method, in turn, indirectly generates a greater cash flow capacity, which can redirect financial priorities and in one way or another be able to pay off remaining debts faster.
Have clear knowledge of the debts details. It is very important to know in detail the terms, rates, fees and other characteristics of the debts and even know which of these provides insurance for crisis or unemployment. This allows a greater field of action and reaction to the alternatives that can be embraced, in case of an emerging situation such as the one we are currently experiencing. The fundamental objective of this is to be able to identify the debts that have higher interest rates and in this case is recommended to analyze whether it is more beneficial to pay faster the debts with the lowest balance or those with the highest interest.
Debt consolidation. Another alternative is to leave your debts in the hands of experts, where they can negotiate interest at a better rate and you will only have to worry about making a single monthly payment that is adjusted to your capacity. Remember that Premier Consumer Credit Counseling can advise you on this.
In conclusion, regarding situations of a financial nature and especially in complex consumer economy issues, achieving timely payment of financial obligations generates peace of mind, emotional stability and a good credit history. It is true that indebtedness creates comfort in the acquisition of goods and services, but being up to date, harmonizes with the environment in general. Borrowing can be done, and doing so in a responsible manner according to cash flows, is vital to maintaining a healthy financial life.