As we continue to put distance between ourselves and 2020, it remains destined to be a year not soon forgotten, despite how much we all wish we could. It saw schools and businesses shuttered, gatherings canceled and the introduction of the phrase “social distancing” into our daily vernacular. And it’s not over yet.
Since March 15, 2020, over 65 million unemployment claims have been made nationally. A check from Uncle Sam provided a small amount of relief but could never replace a real paycheck. That reality has hit home for millions of Americans, causing them to rely on credit to keep their heads above water. Add those cases to the millions of Americans already in debt due to credit card bills or student and home loans, and 2021 will be a year of rebuilding unlike any other.
As you’re sitting at home reading this, you may be thinking, “thanks for telling me something I already know! So wise guy…how do I fix this?” According to financial guru Dave Ramsey, being positive is the best place to start. Most of us have had a financial crisis, big or small, at some point in our lives. It is important to remember that “you can take care of yourself and your family. You can still make the best decisions possible with your money by budgeting through this situation. You will get through this,” in the words of Ramsey.
First, concentrate on the basics. According to Ramsey, “Focus on covering your Four Walls first: food, utilities, shelter and transportation. You feed your family, keep the lights on, pay the rent or mortgage and put enough gas in the car to get to the very few places you need to go these days. Those are your budgeting priorities now.”
Once you’ve taken care of the Four Walls, Ramsey recommends starting his Debt Snowball Method, a debt-reduction strategy where you pay off obligations in order of smallest to largest, gaining momentum as you knock out each balance. When the smallest debt is paid in full, you roll the money you were paying on that liability into the next smallest balance. “The debt snowball works because it’s all about behavior modification, not math. When it all boils down, hope has more to do with this equation than math ever will,” Ramsey shared.
Even when you’re fully committed to a plan like the Debt Snowball, getting out from under a mountain of high interest liabilities can feel impossible. One bright side of the turmoil of 2020 is that it brought with it record-breaking mortgage rates. You might still be wondering what that has to do with your debt.
Loan officer Amy Learn, of Fairway Independent Mortgage, offered useful advice: “Some people who are drowning in credit card debt would 100% benefit from a cash-out refinance to pay off outstanding debts, as long as they have the equity in the home to do so. Since the extra money is added into your mortgage payment and interest rates are so low, it saves people a great deal of money,” she noted.
Getting a handle on individual finances is not only a full-time job but incredibly emotional for many, as Learn has seen firsthand. “I see it often. People have cried at the closing table after getting rid of all their debt.”
2020 was a difficult and trying year to say the least. For many of us, it has changed how we live our lives. However, it does not have to define us. Debt can be temporary, and implementing advice from experts can put crippling debt in our rear-view mirrors for good.
By Stephen Boyer