Best Path to Restoring Your Financial Health

Best Path to Restoring Your Financial Health

It’s been a tough few years since the Covid-19 pandemic struck hard in early 2020, and turned the health and wealth of the global population upside down.

Millions temporarily or permanently lost jobs during the outbreak, forcing many Connecticut and New York households to fall back on accumulated savings or file for unemployment to feed their families and pay bills.

The U.S. and global economies struggle with rising inflation and an acute labor shortage as they attempt to shake off the pandemic’s aftereffects.

Most of what has occurred is beyond your control. However, with Patriot Bank at your side, you can still take steps to rechart a more sustainable course for your personal finances.

Get serious about setting a budget

You wouldn’t attempt to drive to an unfamiliar destination without first opening a map or your navigation app, to chart the most economical, time-saving route.

A budget helps you plot the best, fastest route back to financial health. With one, you can track precisely how much total monthly income you have against fixed expenses, like groceries, rent or  mortgage, and utilities, auto loan, and discretionary ones, such as saving for college, a vacation, or opening a business.

Tally up all your sources of income?

Like most, you have a set amount of income flowing to you monthly, either as salary, pension or other annuity payments, or Social Security disability or retirement income.

And that’s on top of whatever else you draw from your personal portfolio of savings, like 401(K) or Roth IRA, and dividends from mutual funds, stocks and bonds.

This would be a good time, too, to think about giving yourself a raise, by steering a bigger portion of your income to savings, especially if you’re nearing retirement.

Calculate precisely how much you owe

You have a rough idea of how much in total you owe – your home, your vehicle(s), your credit card(s) and your student-loan payments, outstanding local, state and federal taxes included. Take time to add up ALL your debts to arrive at a precise total.

Create a plan to retire your debt

With that sum in hand, now it’s time to devise a repayment plan that will drastically reduce, if not eliminate, your debt.

This would be an ideal time to obtain the latest copy of your credit report, to verify to whom you owe and how much. You may find listed old, settled debts along with active but long-forgotten credit accounts you should close right away.

The report also serves as a baseline for tracking your progress cutting your debt.

Ask your individual creditors for help

Creditors understand bad things happen to good borrowers, so that’s why many have financial-assistance or counseling programs available for debtors who get into trouble.

Some, such as student-loan servicers, can temporarily suspend debt payments – known as forbearance -- to eligible borrowers, to financial-assistance or counseling programs give them time to financially regroup.

Other options include renegotiating your debt with credit-card issuers or other creditors, or setting up workout agreements that waive or lower minimum payments and interest rates, or erase late fees. 

Know, however, interest on any unpaid loan balance continues to accumulate during forbearance, which could make your debt pile even bigger. Beware, too, that debt workouts and renegotiations may trigger tax consequences.

Set realistic repayment deadlines

As a rule, 36 months is considered reasonable for paying off debts like credit cards. Obviously, larger debts, like auto loans, mortgages and home-equity lines of credit, may take longer.

Start off slow. Take your smallest debt, divide the amount owed by 12, to figure out how much you’d have to pay monthly to retire the entire debt in one year.

While most banks, credit unions and other creditors require minimum monthly payments, many allow debtors to pay some or all of their borrowings early penalty free. Take a fresh look at your credit contract, or contact your creditors, to determine which ones allow early repayment.

The good news is, the faster you pay down your debt, the more you’ll save in interest.

Find creative ways to trim expenses

Other money sources you can earmark to pay down debt, such as cash gifts you receive for birthdays and holidays. You could consider taking on a part-time job, or start a side hustle around a passion or hobby, earnings from you could devote to retiring debt or boost savings.

You could also take advantage of a social media phenomenon, and “crowdfund” your way out of debt. A growing slice of today’s overextended consumers are taking to GoFundMe and other crowdfunding sources for family, friends and anonymous donors to “gift’’ toward eliminating student, auto, personal debts, among other financial obligations.

Strive for a debt-free lifestyle

Taking on debt usually begins as a lifestyle choice. So, too, you can choose to avoid it. Do I really need that new dress, business suit or a luxury vacation?

Instead of buying instantly on a credit card and paying back in installments over time, why not take time on the front end, to salt away a few dollars weekly or until you have all the cash you need, then pay all at once?

The best news here is you may wind up with no accumulating interest and no monthly payments.

Ready to get started? Let Patriot Bank help put you on the path toward a lifestyle free of debt.