If you have loans or credit cards with high interest rates, most of what you pay goes toward finance charges. Quickly paying off loan balances with high interest rates can free up cash to pay other bills. Another option is to pay off loans that have small balances. Once they are completely paid off, you will have extra money to pay toward the larger balances. The decision is yours to make but be sure to develop and write down a plan to help you manage your debt completely.
Getting rid of some debts
If you bought any furniture or electronic equipment as rent-to-own, you may be able to return the item so you don't have to make any more payments. Check to see if this is a possible option, and be sure to ask if there will be a fee included to do so. Also take note that some debts, which are deemed very old, may have something called a statute of limitations. If the debt is very old, sometimes the statute of limitations may release you from having to pay. After that time amount of time passes, a creditor can no longer force you to pay. Check with a lawyer before making any new payments on a very old debt.
Exploring what benefits are available to you
Find out how to increase your income. You may be eligible for the following discounts or government benefits:
- Food Stamps (SNAP)
- WIC (women, infants, and children nutrition program provided by the federal government)
- TANF (Temporary Assistance for Needy Families)
- Unemployment benefits
- LIHEAP (Federal Low Income Home Energy Assistance Program)
- Lifeline telephone assistance program
- Federal tax credits
- Free or reduced price health insurance (if you have children)
- Homestead Exemption (if you own or are buying your own home)
- Illinois Senior Citizens Homestead Exemption (if you're over 65 and own property)
Cutting back on spending
Think hard about what you and your family can do to lower the amount of money you spend each month. Think about expenses that you can cut out of your budget:
- Do you eat out often?
- Do you buy more groceries or clothing than you need?
- Can you trade in your car for one that has better gas mileage?
- Can you trade in your car to lower your car payments?
- Can you get a roommate to share the housing expenses?
- Can your family members lower their spending in any of these ways?
Being aware of minimum balances and interest
Paying only the minimum payment on a bill that charges interest can be a problem. The minimum payment is usually 2-5% of the total amount you owe. Paying only this amount stretches your debt over many months or years because interest costs continue to add up. If it seems like you'll never get the bill paid off, you're close to being right. This is known as the minimum payment trap.
You can get out of this trap by always paying more than the minimum balance that is due. Paying more than the minimum balance will allow you to pay off the bill faster, and you will pay a much lower total amount in the long run because there will be less time for the interest costs to add up.
Repaying debt faster
When you pay off one bill, what will you do with the money you had budgeted for that bill? How you use that extra money can make a big difference in how fast you repay your debt and how much you pay. It can also help determine how much you can pay on other bills. You can take the money you would have paid on the old bill that is now paid off and use it to pay off debt owed to another bill. This way you pay off the second debt faster and save money from interest that would have been charged.
Updated: January 2017