Dear Sarah,
I can only imagine the pressure and fear that comes with having debt, but I want to tell you that there is no loss of hope. Although it may seem that way, you can eventually get rid of your debt.
You have identified a major obstacle in repaying your debts: life and its ups and downs. Unfortunately, emergencies hit us at the worst times, and if you don’t have the money set aside to deal with them, you will have to pay for them through debt. So if you don’t have an emergency fund, you need to create one.
I know this may seem contradictory: if you have several months’ worth of expenses set aside, why not use it to pay off your debt? But the truth is that without this fund, any new obstacles to your current debts will increase, as you have already seen.
So, your first step is to ensure that another unexpected event doesn’t push you further into debt. The way to do that is to start setting aside money each month to build an emergency fund. How much will you need? Calculate all your monthly expenses, including rent or mortgage, utility bills, and veterinary care costs. You will want to save at least three months’ worth, but ideally even six months if possible. If you save this amount (and replenish it when you take money from it), you will always have cash on hand to handle any life emergencies without resorting to your credit cards.
The best way to save for emergencies is to integrate the financial goal into your budget. You will also use this budget to save some money to pay off your debts each month. This way, when you receive your paycheck, you will have a specific “job” for every dollar you earn. Some dollars will go toward your credit card bill, while others will go to savings or anything else you need.
The Next Step: Determining the Best Way to Repay Your Debt
You didn’t mention how your debts are distributed or whether you carry them across multiple credit cards, but as they say, the only way to eat an elephant is one bite at a time. You just need to get started – and the good news is that there are multiple debt repayment strategies to help you begin. You can tackle your highest interest debt first, regardless of its size, which is known as the debt avalanche method. Or, if you need the motivation, try the debt snowball method. Pay off your smallest debt first, and work your way up to your largest debt.
And if you have multiple debts on different credit cards, consider debt consolidation or transferring the balance to a credit card with a 0% interest rate. Financial consolidation can lower your interest rate and make debt repayment easier, as you’ll only have one bill to pay instead of many. If you decide to move to a balance transfer, you should be aware that you will have a limited time frame (up to 21 months) during which you can make interest-free payments. So make sure to check the terms of the agreement and ensure that you can pay off the debt before a high-interest rate is applied again. This means that a balance transfer is better if you are confident in your ability to pay off the debt within a shorter timeframe.
Decide which method is best for you and focus on it seriously. You will likely need to make spending changes to make this goal a reality and reduce your expenses. But you will be able to overcome this, even though it may not seem that way now. If you pay off debt one payment at a time, you will someday become debt-free.
–
Christine
If you have questions about money, Christine is here to help. Submit an anonymous question and she might answer it in a future article.
Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts in our articles. Read our editorial process to learn more about how we verify facts and maintain the accuracy, reliability, and quality of our content.
Vanguard. “What is an appropriate emergency fund amount?”
Source: https://www.thebalancemoney.com/my-boyfriend-and-i-cant-get-out-of-debt-what-do-we-do-6754157
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