In 2023, the average individual household debt balance reached $104,215, marking a slight increase from the previous year, as reported by Experian. This figure includes various types of personal debt such as mortgages, car loans, student loans, and credit cards. With potentially large sums of debt to manage, tracking who and what you owe can become challenging. Below, we outline effective methods to identify all your debts, strategies for paying them off, and actions to take if payments become unmanageable.

Identifying All Your Debts

Understanding the full scope of your debts is the first step towards financial control. Here are three effective ways to uncover all your debts:

Check Your Credit Reports

Your credit report lists all your debts, including the creditor’s name and the amount you owe. You can review your Experian credit report for free at any time. Moreover, you can obtain weekly credit reports from the three major credit bureaus—Experian, TransUnion, and Equifax—for free by visiting AnnualCreditReport.com or calling 877-322-8228.

However, keep in mind that some creditors, like payday loan providers, do not report to the bureaus. As a result, such debts may not appear on your report.

Go Through Your Mail

Search for any notices about unpaid bills, balances owed, or accounts in collections that you’ve received. These documents will help identify whom you owe. Always verify the legitimacy of collection letters to avoid falling for debt collection scams. You can do this by searching online for the collection company and contacting them directly.

Contact Creditors Directly

You can also directly contact your creditors to ask about your outstanding debts. Request an updated statement detailing your current balance and upcoming payments. If your debt is in collections, ask your lender for the name and contact information of the collection agency they’ve sold your debt to.

How to Pay Off Debt

Once you’ve identified all your debts, here’s how you can start paying them off:

Take Inventory of Your Debts

The first step is to list all your debts. You can use paper, a phone app, or a computer spreadsheet. For each debt, note the creditor, remaining balance, interest rate, payment due date, and the minimum monthly payment.

Sorting your debts by balance size or interest rate helps prioritize and manage them more effectively.

Adjust Your Budget

Creating a debt payoff budget is one of the best ways to tackle your debts independently. This approach allows you to adjust your spending to focus on debt reduction while also pursuing other financial goals, like building an emergency fund.

If you’re facing significant debt or financial strain, consider a strict, bare-bones budget that cuts all but essential expenses. Alternatively, a 50/30/20 budget allocates 20% of your income towards debt repayment and savings.

Use a Debt Payoff Strategy

Consider the debt snowball method, where you pay off the smallest balance first, then move to the next smallest. This method is beneficial if you struggle with managing multiple debts.

Another option is the debt avalanche method, where you first eliminate the highest-interest debt, then the next highest. This strategy helps save the most on interest payments.

Consider Debt Consolidation

If managing multiple payments is overwhelming, a debt consolidation loan might be beneficial. However, this option requires good credit and a commitment to stick to a budget and avoid further debt.

What to Do if You Can’t Afford to Pay Your Debts

If you’re struggling to meet your debt payments, taking early action can help stabilize your financial situation. Here are some steps to consider:

Review Your Budget

Identify potential spending cuts or areas for additional income. Learning how to pay off debt on a budget involves reducing unnecessary expenses and exploring extra income opportunities.

Talk to Your Creditors

If you face financial hardship and can’t make payments, contact your creditors immediately. They may work with you to reduce your interest rates or payments.

Contact a Credit Counseling Service

A nonprofit credit counselor can help you develop a plan to get out of debt. They will review your finances and suggest ways to manage your debts, afford your bills, and budget effectively.

Consider a Debt Management Plan

A credit counselor might recommend a debt management plan. In this plan, your counselor negotiates lower rates or monthly payments with your creditors. You’ll close your credit cards and make one monthly payment to your counselor, who handles payments on your behalf.

Frequently Asked Questions

How Do I Find All My Debts for Free?

• Review your credit reports, check your mail for debt notices, and contact your creditors directly.

What Happens if I Don’t Pay My Debts?

• Failing to pay debts can lead to collection actions, damaged credit scores, and increased financial strain.

How Do I Find Out Who Owns Collection Debt?

• Review your credit report or contact your original lender to get the collection agency’s contact information.

Carrying high-interest debts can significantly burden your budget and well-being. However, gaining a clear understanding of your total indebtedness is a critical first step toward regaining financial control. From there, creating a strategic repayment plan and maintaining open communication with creditors if you struggle with payments can pave the way to financial recovery.

If you ever need expert assistance or guidance on your credit journey, don’t hesitate to reach out to the Nerds! Additionally, stay updated with the latest tips and information by following us on Facebook, Instagram and TikTok!