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Overwhelmed With Debt? where to start here

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A Clips from a phone-in radio show featuring a millennial couple seeking help tackling a debt burden of nearly $1 million have prompted a conversation about many Americans’ rising levels of personal debt.

By the end of last year, household debt in the US had reached $16.9 trillion. Federal Reserve Bank of New York data, A 2019 Federal Reserve survey found that 77% of American households Have any type of debt, including mortgages, credit cards, student loans, and auto loans. as wages lagged behind increased cost of living, especially for workers at the bottom of the economic pyramid, millions of people Struggling with huge debt.

“As anyone who is in debt should know, they are certainly not alone,” Lynette Khalfani-Cox, a former financial journalist who now runs The Money Coach, a financial education company, tells TIME. “The question becomes, is your debt holding you back?”

As the Federal Reserve hikes interest rates to combat inflation, Millennials and Gen-Z-ers in particular face the tough pressures of a mounting debt burden, coupled with a housing and rent crunch.

Ramsey Show episode in which a 29-year-old woman called to discuss How she and her husband paid off debt without declaring bankruptcy originally aired in 2018 but went viral after host Dave Ramsey posted a clip of the call TIC Toc Last week. The caller said the couple had advanced degrees that earned them government jobs with a combined household income of about $230,000. His debt included $335,000 in student loans, a $210,000 mortgage, approximately $136,000 in credit card debt, $44,000 in personal loans and $35,000 in car loans, totaling $760,000. It did not say whether any additional interest was due on that couple.

A stunned Ramsey asked the caller how this all happened, and he replied that it was “the result of making really bad financial decisions, thinking you’d be able to pay as you go, and it doesn’t.” Is.” Ramsey, a famous evangelical christian both culturally and economically conservative and advocates small government and frugal lifestyle for the debt-ridden. He said the couple should address their inherent drive to spend beyond their means and make lifestyle changes to reduce their spending. “You’re not going to go inside a restaurant unless it’s your side job, or you’re waiting on some people from work during the day,” he said, citing an example of more frugal living. in the form of.

Read more: How We All Benefit From Student Loan Relief

While the average American owes significantly less than this couple—around $60,000—many are still struggling to pay their dues. In some cases that can trigger financial shame spiral Which makes it difficult to address.

TIME talked to personal finance experts to get some practical advice on how borrowers can reduce their debt burden.

focus on what works for you

When you don’t know where to start, a good first step is to focus your efforts on the account with the highest interest rate to prevent accruing more debt.

“It’s just become more expensive to pay off debt,” Christine Benz, director of personal finance and retirement planning at Morningstar, an investment research firm, told TIME. “Even if people haven’t taken out additional levels of debt over the past year, their carrying cost on that debt has increased.”

Another strategy, Benz says, is “to just attack the smallest loan possible and take it out regardless of the interest rate attached.” This method can help people feel a sense of accomplishment and motivation to move on to the next account until they eventually clear off multiple loans.

Those with multiple lines of credit may consider debt consolidation, which may allow borrowers to focus on making the one-time payment at a lower interest rate. Another helpful strategy may be come on the phone Check with your lenders and see if they are willing to lower interest rates. if possible that is also ideal pay more Paying more than the minimum or more than once a month to pay off the loan faster.

Kalfani Cox takes a different approach, saying, “I tell people, attack your pain zone. Go after what bothers you the most. And so, sometimes, yes, this high interest There are rates that are really killing people.” Although this is not always the case. In her experience dealing with $100,000 in debt, Kalfani-Cox’s problem was exceeding the maximum limit on some credit cards, which affected her credit rating. She compares getting out of debt to losing weight. She says there’s no “one size fits all advice” for this, just like there’s no universal diet.

plan to stay on track

For many financial advisors, the top method they recommend for their clients to keep getting paid is to track their expenses and budget. Budgeting lays out all your expenses and can be easily plugged into a template, automatically uploaded to the app or manually entered into a spreadsheet, depending on your preference .

Kalfani-Cox mentions that although some people love it, budgeting isn’t effective for everyone and that’s okay. “Some may rely more on bank alert notifications; They can use software and apps and tools; They may have things online that are giving them clarity and insight to their overall finances. She advises people to stick to a method that works for them.

Ramsey’s Famous Approach This includes giving up expensive hobbies, considering a side hustle, selling your expensive car and replacing it with a used car, and making drastic lifestyle changes through strategies such as couponing. To some, this approach may seem extreme, but financial advisors generally agree that if borrowers are willing to drastically limit their discretionary spending, it should help them find the money to reduce their debt faster. Will get

“The speed at which you will get out of debt is 100% tied to the strategies you are willing to do, and how many of them you are willing to do at once,” Khalafani-Cox said. He believes that people shouldn’t chase unrealistic sacrifices — like not eating out at all, as Ramsay suggests — but big changes like living in a more affordable city, if possible, or saving big by getting a roommate. Might be possible.

get help

Navigating debt is challenging, but opening up to a professional and getting some advice can help make it easier to handle. Experts also recommend this step to help you deal with feelings of shame when you feel like you can’t talk to friends or family about it.

Read more: Credit card debt has reached an all-time high. Here’s How You Can Pay It Off

“In a situation where one’s feelings are really overwhelmed, there is a lot of stress and perhaps shame with their poor financial situation, it seems counterintuitive, but I think getting some financial help is good money.” Can cost like that,” says Benz.

Benz suggests that meeting with a financial planner on an hourly basis may be the best budgeting option if borrowers choose to go this route.

Don’t Forget Your Other Goals

Goals like saving for a home or retirement can be put on the back burner when you’re struggling to pay off debt.

Read more: Should I Withdraw Social Security Earlier If It Gets Cut?

If possible, Benz recommends automatic savings payments such as 401K contributions and maintaining personal savings for short- or medium-term goals. “It’s a great way to put some money aside for the future,” she says.

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