By: Stefanie O’Connell Rodriguez
Sponsored by Discover Personal Loans
Even the best laid financial plans can get thrown off course by the unexpected, be it illness, layoff, or two years of Covid-19 disruptions.
According to a 2021 survey from Discover® Personal Loans, 53% of Americans with existing medical expenses say the pandemic caused them to take on new medical debt. And 63% report being anxious about paying it off. That financial stress can compound as consumers tap into emergency savings, borrow money from loved ones, or pay their bills later than usual.
This financial stress paired with two years of pandemic disruptions can make it hard to think about the future, let alone make plans. But research shows that practicing financial optimism can pay off, with optimists reporting greater career gains, higher incomes, more emergency fund savings, and reduced financial stress.
Of course, a healthy level of optimism doesn’t mean ignoring financial realities like outstanding medical bills and debt. It just means believing in your own capacity to face those challenges, appreciating that they might only be temporary, and knowing that you can make progress despite them.
Here are five steps to get you started:
1. Review your financial priorities
Many of us have had to shift our plans in the past two years, financial and otherwise. As we move into another year of uncertainty, it’s important to remain flexible so you can continue to adapt to unexpected challenges and opportunities.
So, if you haven’t already, it’s a good idea to take a snapshot of your full financial picture as it stands today. Start by taking stock of your income, expenses, assets, and debts. Then give yourself time and space to think about how your financial goals, needs, and priorities may have changed as well.
Are major financial commitments, like purchasing a home, still within your short-term horizon? Or do you want to focus more on immediate goals, like paying off debts or building emergency savings?
Once you’ve gotten clarity on your full financial picture, you can better define your current money priorities and start building a plan to support them.
2. Revisit your budget
Much as your financial goals may have shifted these past two years, so too may your income and expenses. Revisiting your budget will help ensure you’ve accounted for any added or reduced expenses or income, and let you identify where there may be new savings opportunities. If you’re working more from home, for example, you might be saving on gas, eating out, and social expenses. And don’t worry, you can still budget wisely even if your income is inconsistent.
To get a better sense of where your money is going, look through your bank and credit card statements from the last three months. As you review each line item, you can start to get a sense of how much money you might be able to direct to your new financial priorities. If you haven’t already, keep an eye out for new spending and savings patterns you may have experienced as a result of Covid and make sure your budget is updated to account for them.
If you’re new to budgeting, you can start by identifying your biggest expenses. Then, automate your payments as much as possible by scheduling direct debits or putting them into your calendar. Finally, commit to consistently tracking your spending every month.
3. Start working toward important financial goals
Once you’ve taken stock of your full financial picture, revisited your budget, and reviewed your most recent day-to-day spending, you’ll likely have a clearer picture of the ways goals like debt payoff can fit into your current financial plan.
If paying down debt is a priority, make a list of each of your debts, their respective balances, interest rates, and minimum monthly payments. If you find you’re having trouble making monthly payments on any of your debts, you may want to reach out to your lenders to ask about alternative repayment plans or emergency financial relief.
4. Think about consolidating debt
If, when you’re listing out each of your debts, you find yourself facing down a lot of high or variable interest rate debts, you may consider consolidating them with a personal loan. That way, you can pay off several creditors with a single loan, which can simplify the repayment process, potentially reducing the amount of time it takes you to pay down your debt. Another bonus: With a set regular monthly payment, you may find it less stressful to build debt repayment into your budget.
While debt consolidation will not lower the total amount of principal you owe, it could save you money on interest if you consolidate several higher-interest debts into one fixed-rate personal loan. In fact, 91% of surveyed debt consolidation customers said they saved money with a Discover personal loan and the majority of them said they saved an average of $350 per month.*
Check out this debt consolidation calculator to see how much you might save with debt consolidation.
5. Tackle financial stress one step at a time
If you’re still feeling overwhelmed and unsure where to begin, give your bank a call. Once you’ve explained your situation, they can walk you through your repayment options. Just make sure to consider how any plan will fit into the financial priorities and budget you’ve already identified and ask about any associated costs or fees.
If at any point in this process you feel the financial stress creeping back up on you, challenge yourself to do less. It may sound counterintuitive, but in moments of financial overwhelm, taking smaller steps on a consistent basis can be far more effective than trying to do or plan everything all at once, especially amid ongoing uncertainty.
So, for now, choose one small action step; it might be taking inventory of your debts or checking out the debt consolidation calculator or calling up your lender. And as you take each step, you may find yourself gaining the momentum and information you need to take the next step and the next until you start seeing real results.
Remember, it’s important to be patient and kind with yourself as you work through this process. You didn’t get where you are today overnight, and it may take some time to get to where you want to be. But with the right systems and tools, you’ll be well on your way.
Want to learn how to pay off debt faster?Read More