Does it seem like your bills keep piling up no matter how hard you work to pay them off? If so, it’s not surprising. Americans’ total outstanding credit card debt recently rose above $1 trillion for the first time since 2007, and total auto and student loan balances are also over $1 trillion. If you feel overwhelmed by outstanding debt, follow these practical tips from the Pennsylvania Institute of Certified Public Accountants (PICPA).
Begin by answering two important questions. First, what do you currently owe? When you calculate how much you owe in total and what you pay every month, it’s easier to create or update a realistic budget
that can give you more control over your spending and your debt management. Second, find out how much interest you pay on each balance, and rank your balances based on the interest rate from highest to lowest. Typically, it’s best to pay off the highest-rate loan first, but consider also getting rid of some smaller debts early on—even if they have a lower rate—to give yourself a sense of accomplishment and motivate you to stick to your plan. If you need help putting together a budget or have any debt management questions, be sure to talk to your local CPA.
Check Your Credit Score
Your credit score, which is determined based on a number of factors
, is important because lenders use it in deciding whether to give you a loan and how much interest to charge. The lower your score, the more likely it is that you might be denied a loan or that you may have to pay a higher interest rate. A lower credit score can be improved and the first step is to obtain you’re annual free credit report from each of the credit agencies—Equifax, TransUnion, and Experian—so get yours and find out where you stand and what you need to focus on to improve your score. Obtain your free reports now!
Pay on Time
Speaking of your credit score, it’s useful to know what elements count most when it’s calculated. You may not be surprised to hear that a total of 35 percent—the largest single portion—of your score is based on your past payment history. In other words, if you’ve missed payments it will drag down your score. It will also likely subject you to hefty late fees. To keep on track, set reminders about your payment due dates in your calendar and avoid splurges that could leave you short on cash when it’s time to pay your bills. If you will miss a due date, don’t do nothing. Contact your creditor to request an extension if possible to avoid a negative credit bureau reporting.
It can be intimidating to contact credit card companies or other lenders if you’re struggling to make payments, but it’s worth letting them know that you’re having some difficulties and are trying to stay current. Many will be willing to lower your monthly payments or make other accommodations if they hear from you and are reassured that you are making an effort.
Finding the money to pay on time and eliminate debt can be easier said than done. If your budget is squeezed, it’s time to look for any unnecessary expenditures
in your budget. For example, shopping for a cheaper cable and Internet plan and cutting out expensive daily coffees or takeout meals will reduce your expenditures and make it easier to keep up with payments and lower outstanding balances.
Your CPA Can Help
Stressed out about money? Wishing you could minimize your debt? Trying to save for a house or a child’s college education? No matter what your concern, your local CPA can offer the information and advice you need to make the right decision. Turn to him or her with all your financial questions. To find a CPA in your area or for more financial tips, visit www.picpa.org/moneyandlife
Originally published July 24, 2017