- Self-care is indispensable.
- Review your debts and select a repayment strategy.
- You can talk to your lenders to get temporary relief or negotiate a debt settlement.
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Many situations in life can lead to debt and financial stress. That stress can affect your mental and physical health.
If you’re going through debt stress, remember that financial issues are common. Taking care of your health and selecting strategies to manage debt can help you relieve this stress.
What is debt stress?
Debt stress is just what it sounds like—the stress caused by debt. You might also feel stressed about your financial situation in general. If you notice you’re often worried or overwhelmed about money matters, you might be in financial stress. When it’s severe, financial stress can cause physiological symptoms.
What are the signs of debt stress?
If you’re feeling the pressure of debt, keep an eye out for any changes in your body, emotions, and mental health.
The effects of financial stress can include changes in weight, heart rate, and blood pressure. You might also notice financial stress affecting your work, relationships, and other day-to-day activities.
Debt stress may trigger various emotions like anger, sadness, and shame.
Debt stress can cause excessive worry and anxiety in some people. You might also feel mentally exhausted or have trouble sleeping, focusing, and relaxing.
5 ways to deal with debt stress
Let’s look at some helpful strategies to overcome debt stress.
1. Stay on top of your health
If debt stress is affecting your mental or physical health, consider getting medical help. A health professional can review your lifestyle and help you improve your feeling of well-being.
You can also add some relaxing activities into your daily life.
Developing a healthy lifestyle can help you stay focused on getting out of debt and improving your financial health.
A healthy lifestyle means different things. It might mean moving more, or it might mean choosing different foods. Some people benefit from getting on a regular regimen with their medications or from learning how to meditate. Once you start exploring options and asking questions, you can experiment with solutions that produce results for you.
2. Review your financial situation
Sometimes it’s tempting to ignore your bills. There’s no shame in wanting to avoid information that just makes you feel bad. But in fact, the knowledge can ultimately help you feel better. Taking stock of your debt, income, and monthly expenses can motivate you to find a solution.
Enter all your debt information into a spreadsheet or debt repayment app. This will allow you to prioritize your debts. For instance, if you have a mortgage, that payment should be at the top of your list. You should also get caught up and stay current on your utilities and cell phone. If you’re not sure where to start, a nonprofit credit counselor or financial counselor can help.
3. Make some adjustments
Once you have a snapshot of your finances, decide what changes you’ll need to make to pay off your debt. It’s normal to have to make some sacrifices, but that can look different for everyone. Here are some ideas:
Review your spending habits: Check if there are non-essential expenses you can cut back on temporarily.
Create a monthly budget: If you normally keep spending until all your money is gone, it’s hard to have any left to pay off debt. Budgeting can help you make the most of your money.
Put away your credit cards: Use debit cards or cash until you pay off your debt. Don’t be afraid to close all or most of your credit card accounts. Some people will warn you not to, because doing so could cause your credit score to drop. That’s true, but when you have overwhelming debt, your credit score probably isn't the most important factor to consider. Debt can cause stress, whether you have a 400 or an 800 FICO score. Your credit will improve naturally as you work toward your goal.
Make minimum payments: Collection accounts are more difficult to deal with. Stay current on all of your bills if you can.
Stay the course: Keep your end goal in mind. Even if you take a step back now and then, just keep trying. Getting out of debt isn’t easy or quick, but it’s enormously satisfying and worthwhile.
4. Select a debt repayment plan
Let’s look at some popular debt repayment methods.
Debt snowball: Pay off the smallest outstanding balance first and then the next smallest balance. With the snowball method, you might pay off the low-balance items in a short time and feel inspired to keep chipping away at your debt.
Debt avalanche: Pay off the debt with the highest interest rate first and work your way down to the cheaper debts. The avalanche method can save you interest costs over time but if your balance is large, it could take a while before you reach your first milestone.
Note: it’s important to pay the minimum balances on all other debt while you use debt snowball or debt avalanche.
Debt consolidation loan: Get one loan to pay off multiple smaller debts. This method might help reduce debt stress because you would only have to manage one loan going forward. Your monthly payment on one loan might be smaller than the total of all the monthly payments you’re making right now, giving your budget some breathing room. Consolidation might also be cheaper if you can get a lower interest rate compared to the interest rates on your other debts. It might not save you money, though, if you take more years to pay.
Credit card balance transfer: Some cards offer balance transfers at a 0% Annual Percentage Rate (APR) for 12 months or more. You can park some debt here and focus on paying off the balances that are accruing interest. Or you could knock down your debt a lot faster because your payments won’t be spent on interest during that promotional period.
Note: balance transfers may have a fee amounting to a few months’ interest cost.
Other methods: You might want to pay off your debt in a different order. For example, some people pay off maxed out cards first. This strategy might help you improve your credit score faster. Ultimately, it doesn’t matter what your plan of attack is. Just pick a debt and go for it.
5. Talk to your lenders
If you're facing financial hardship due to losing a job or other circumstances, speak with your lenders. Check if you can get a more favorable repayment plan until you sort things out.
Your lenders may offer hardship programs with benefits like lower monthly payments or a reduced interest rate for a certain period.
Financial options for dealing with debt stress
Here are some ways you can consolidate or reduce your debt.
Personal loan if you qualify
You can get a new personal loan to consolidate other loans or credit card debt. Depending on your credit, you might qualify for an unsecured loan or a personal loan secured against one of your assets.
Some lenders offer pre-qualifications that don’t affect your credit score (soft inquiry). So you can check your qualifying chances and compare different loans without harm to your score.
Home equity loan if you are a homeowner
Your home equity is the market value of your home minus your mortgage balance.
If your home’s value is $250,000 and you have a mortgage balance of $150,000, your equity is $100,000.
Lenders may let you borrow against this equity, sometimes up to 75-90%. In the above example, you might qualify for a home equity loan of up to $75,000-$90,000, depending on your financial situation (your income, your debts, and your credit standing). To pay off other debts with a home equity loan, you’ll probably need at least a 600 FICO score.
Home equity loans usually have lower interest rates than credit cards or comparable personal loans.
Debt resolution if you are struggling
If you’re struggling to repay debt, you can consider debt resolution. Debt resolution is negotiating with your lenders to accept less than the full amount owed.
You can negotiate with banks and credit card companies on your own, or get help from a professional debt settlement company. They can negotiate with your lenders to reduce your debt.
This method is worth considering if you’re already delinquent on some or all of your debts. Creditors usually won’t negotiate if you’re current, because they have no reason to believe you can’t keep making your payments. If you had every intention of paying off your debts but now you can’t, debt resolution might help you. There are some pros and cons to debt resolution, so it’s best to talk to a debt consultant about your specific situation.