Debt is an often unfortunate part of life. Many people are living paycheck to paycheck, or have to take on side hustles just to make ends meet. With inflation remaining high for basic necessities like groceries and gasoline, it’s easy to find yourself in debt pretty quickly.
If you’ve reached a debt of $10,000, you’re fast moving toward a dangerous financial place where it’s difficult to get ahead or out of that debt. Financial experts explain what steps you must take when your debt reaches $10,000.
Get Honest With Yourself
If you’re staring down the barrel of $10,000 in debt, “You gotta sit down and have a heart-to-heart about how you got here,” said Jeff Rose, CFP and founder of Good Financial Cents. “Is it the shopping sprees? Eating out? Those once-in-a-lifetime sales that happen every other week?”
Plug the Financial Leaks
Once you’ve pinpointed the leaks, it’s time to plug them.
“You need a solid plan,” Rose said. “This might mean cutting back on the luxuries or figuring out what you can live without. And hey, nobody’s saying you’ve got to live like a hermit. Just be more mindful about where your cash is going.”
Stop Taking on Debt
Probably the most obvious step when you’ve reached $10,000 in debt, is to stop yourself from taking on more debt, said Bri Conn, co-host of the Childfree Wealth Podcast.
“This means switching to using cash or debit cards and sitting down to create a budget,” Conn said. “Creating a budget will require you to list out your income and expenses. Categorize these as a must, should or could.”
If you have high-interest debt, this is especially crucial.
Stop Spending Money You Don’t Have
This means creating a budget and sticking to it, said Stephen Clark, a financial expert and founder of Finbri.
“You need to track your income and expenses so that you can see where your money is going,” Clark said. “Once you know where your money is going, you can start to make changes to your spending habits.”
Make Extra Payments on Your Debt
Even if you can make only an extra $50 per month, extra payments will add up over time.
“The more money you can put towards your debt, the faster you will pay it off,” Clark urged.
Talk to Your Creditors
Don’t assume that all your debt is non-negotiable.
“If you are struggling to make your payments, talk to your creditors,” Clark said. “They may be willing to work with you to create a payment plan that you can afford.”
Leverage Debt Stacking
If your debt is not just from one source but several, consider debt stacking, a method that involves strategically repaying your debts based on the impact of their interest rates on your cash flow, according to Skyler Fernandes, CEO and founder of VU Venture Partners.
“While the debt avalanche focuses on the highest interest rate first, debt stacking considers not only the rate but also the total minimum payment,” he said. “By paying off the debts that free up the most cash after they’re paid off, you can have more flexibility and resources to tackle the remaining balances effectively.”
Zero-Interest Credit Cards
If you’re already $10,000 in debt, opening a new credit card might not sound like a great idea, but Fernandes has a creative strategy if you can find credit cards that offer zero-interest balance transfer promotions. He said using these is an often-overlooked strategy as a debt repayment tool.
“Look for a card that offers an extended 0% APR period (for 12 to 18 months) and transfer your high-interest debt to it,” he said. “Then, instead of making minimum payments, divide the balance by the number of months in the promotional period and set up automatic payments. This can help you clear the debt before interest kicks in, saving you a substantial amount.”
Of course, be sure you read all the fine print to make sure there’s not some hidden catch.
Debt Management Programs
Debt management or consolidation programs often offered by non-profit credit counseling agencies are designed to help individuals repay their debts more efficiently, according to John Browning, financial advisor with Guardian Rock Wealth.
“What’s lesser known is that these programs can often negotiate with creditors to reduce interest rates and consolidate payments,” Browning said. “This can make your debt more manageable and potentially shorten the time it takes to become debt-free.”
Consider exploring peer-to-peer lending platforms as an alternative source of debt consolidation, Browning suggested.
“These platforms connect borrowers with individual investors who fund loans,” he said. “The interest rates can sometimes be more competitive than traditional lenders, and the application process is often more flexible. By consolidating your debts through a peer-to-peer loan, you may save money on interest and have a clear path to debt reduction.”
Seek Professional Help
If you are struggling to manage your debt on your own, seek professional help from a financial advisor or credit counselor. They can help you to create a budget, develop a debt repayment plan and negotiate with your creditors, Browning said.
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