Debt, debt, debt. It’s like the never-ending story we all know and love. Just when you think you’ve got your debt under control, BOOM! A global pandemic breaks out, inflation goes through the roof, and rising interest rates make it difficult to qualify for loans.
So what can you can to manage your debt? Put down that credit card as we have a few practical tips to keep your debt in check. We promise, it’ll be worth it.
Understanding Inflation and Rising Interest Rates
Ah, inflation and rising interest rates—the dynamic duo that makes managing debt feel overwhelming and impossible. Before diving into how these economic forces impact how you manage your debt, let’s start with the basics.
In simple terms, inflation is when the cost of everyday goods and services rises faster than usual. Not only are you paying more for essential items during periods with high inflation, but you’re also paying more to borrow money from lenders to buy a house, car, or to take out student loans.
Rising interest rates also impact how much lenders can lend and how much borrowers qualify for. For example, a mortgage on a $665,000 home with a fixed interest rate of 4 percent is approximately $2,800 per month, while the same home with an interest rate of 6 percent requires a monthly payment of about $3,400.
As the cost of goods and services rises, many of us accumulate more debt faster. At the same time, higher interest rates also make it more expensive to pay off the same debt that consumers accumulated over the past few years.
But don’t worry. With the right strategies and some determination, managing debt doesn’t have to be so difficult.
Tips for Managing Debt
In a previous article, we discussed several tips on tackling personal debt to improve your financial position. That advice still applies but we have some lesser-known tips that may help you make more money and pay down your debts faster than before.
Tip #1 - Starting a Side Hustle
Starting a “side hustle” can be a great way to increase your income and eliminate your debt faster. A side hustle is typically a small business or source of income that people run in addition to their full-time jobs to supplement their income.
We know. More work outside of already busy schedules, but keep the end goal in mind.
There is no one-size-fits-all side hustle that we recommend. However, here are some ideas for a potential side hustle you can start to help make more money and pay down your debt:
Start freelancing. Freelancers get to make their own schedules and can work whenever they want. The best part about freelancing is that you can sell many in-demand skills to build up your client base and make good money, and getting started as a freelancer requires virtually no upfront investment. Some of the most popular skills for freelancing include writing, programming, graphic design, and coaching.
Writing transcription. Fast typers may want to take up writing transcription as a side hustle. Writers typically get paid for the length of the content they transcribe, which can add up to a large sum for those that put in enough time with their transcription business. Websites like Rev or TranscribeMe are the best places to start transcription as a side hustle.
Start a YouTube channel. Believe it or not, there is still plenty of opportunity for those who want to start a YouTube channel as a side hustle. YouTube allows creators to make video content around a specific category (or “niche”) and collect income from running ads to their audience or through affiliate offers. Building a YouTube channel isn’t easy, but it’s still one of the best side hustles in 2023.
Create an online course. Do you have specialized knowledge in a field or niche? Get paid for what you know by creating an online course! Online courses are one of the best ways to generate passive and predictable income, and you get to form relationships with real people with common interests. Use course platforms like Kajabi or Kartra to scale your side hustle and reach more people with your online course.
Tip #2 - Negotiate a Pay Raise at Work
Asking your boss for a raise can be daunting, but remember, you should be fairly compensated for your hard work and contributions to the company.
While there are no guarantees for a pay raise, you should present your boss with a clear and concise case explaining why you deserve a raise. Highlighting your accomplishments and explaining how a pay raise benefits yourself and the company is the best way to approach getting a pay raise at work.
If you don’t find success negotiating a pay raise at your current position, switching jobs is one way to earn a higher salary in a similar role within the same industry.
Just remember, don’t switch jobs when you’re shopping for a mortgage or applying for a loan!
Tip #3 - Keep Your Expenses As Low As Possible
Tackling debt starts with living a modest lifestyle and reducing your expenses. Yeah, yeah. Not the most exciting tip you’ll ever read.
Every dollar counts, and cutting back on unnecessary costs can free up more money you can use to pay off your debt.
It’s important to remember that just because you have more money doesn’t mean you have to spend more. Expenses like housing, food, transportation, and entertainment should remain the same regardless of your income.
The Importance of Managing Debt for Homeownership
Tackling debt is especially important for potential homeowners and those interested in refinancing. Lenders look at your debt-to-income ratio (DTI), which is the percentage of income you put toward your current debt obligations. A high DTI ratio can make it more difficult to qualify for a mortgage and may result in a higher interest rate.
Having a good credit score is another crucial part of the application process. Your credit history shows lenders your ability to pay back previous debt obligations, which may influence whether or not they decide to issue you a mortgage for a new home.
Paying your credit card bills, student and other loans on time is the best way to increase your credit score and qualify for a mortgage with a reasonable interest rate.
The Bottom Line About Tackling Debt
With a well-thought-out plan and some discipline, it is possible to tackle your debt and find some control over your finances.
Make sure you pay off high-interest loans first and continue to work on increasing your income to help get rid of the debt hanging over your head. If increasing your income is just not on the table, reach out to our awesome team members.
They can help you kickstart your debt repayment whether that’s with a home refinance, debt consolidation loan, or with advice about how to negotiate lower interest rates on your current loans (it is possible).