5 Ways to Get Rid of Debt Stress

If you're feeling stressed or anxious about your debt, you're not alone. Studies have shown that over half of U.S. adults in debt say they regularly deal with debt stress.

While debt stress may be common, taking control of your finances can help you banish it. Here are a few tips for managing your debt and getting rid of debt stress.

Understanding debt stress

Debt stress is anxiety, fear, or worry caused by debt. You may be worried about paying off existing debt, taking on future debt, or both.

Stress from debt can negatively impact your mental and physical health. Excessive stress can lead to sleep loss, higher blood pressure, and even respiratory problems. Debt stress can also impact decision-making abilities and cause problems in close relationships. Let's look at how you can reduce that stress.

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How to cope with debt stress

1. Upgrade your financial skills

Knowledge is power, especially when it comes to taking charge of your finances and debt. Happily, you have a ton of great financial education resources right at your fingertips. 

Most banks offer financial education resources to help you learn key skills like budgeting, saving, and using credit. You can also find a lot of quality information online, though it’s good to make sure you're looking at reputable sources. 

Tip: Social media isn't always the best place for sound financial advice.

You can also hire a professional to help you learn money management skills. An Accredited Financial Counselor (AFC) or Certified Financial Planner (CFP) can be a helpful resource who will keep your needs at the forefront. You can also consider credit card counseling for managing credit.

2. Organize your finances and build a budget

Everything is more stressful when you can’t see exactly what's going on. A great first step in tackling your debt stress is to review and organize your finances so you can see the big picture.

Once you know where you stand, it's time to get everything under control. This starts with building a budget.

A good budget helps you figure out your financial priorities and goals, and shows you how to reach them. Think of a budget as your guide for getting rid of debt stress forever.

 What tools you use are up to you. Here are a few options:

• Use a notebook or a journal. This is a good option for people who focus better without a screen in front of them, or who like the tactile nature of writing things down. The ability to color-code a journal can also help more visual organizers.

• Create a digital spreadsheet. A spreadsheet can be an excellent way to organize finances, and built-in tools like calculators and data sorting can be helpful additions.

• Download a mobile budgeting app. Lots of great budgeting apps are available for smartphones and tablets. Many can interface with your bank and credit accounts to automatically import and categorize your transactions.

3. Set aside an emergency fund

It's not always the current problem that causes your debt stress—sometimes it's the thought of the next one. More than half of Americans wouldn't pay for an emergency expense from savings, but would rely on cutting expenses, using credit cards, or borrowing money.

Most experts recommend having an emergency fund set aside for just such occasions. How much you should have varies by who you ask, but even a few hundred dollars set aside for an unexpected car repair or vet visit can help relieve a lot of potential debt stress.

There's also an app for that: You can find mobile apps for saving money that offer automated savings tools for set-it-and-forget-it solutions to building up your emergency fund or other savings.

4. Create a debt repayment plan

Paying off your debt can eliminate most or sometimes all of your debt stress. With your budget in hand, decide on a debt repayment method that fits your budget and needs:

• Debt snowball: Pay off the smallest outstanding balance first, then the next smallest balance. With the snowball method, you might pay off the low-balance items in a short time, and feel inspired to keep chipping away at your debt. 

• Debt avalanche: Pay off the debt with the highest interest rate first and work your way down to the lower-interest debts. The avalanche method can save you interest costs over time, but if your debt balance is large, it could take a while before you reach your first milestone.

• Max to min: Pay off your maxed out credit cards first to lower your credit utilization (how much of your total credit you're using). Like with the debt avalanche, it might take a while to pay off your first debt, but your credit score could bounce back sooner than other methods.

No matter which method you choose, always make at least your minimum payment on time every month to keep your accounts in good standing.

5. Talk to your lenders

If you're facing financial hardship from losing a job or other life events, speak with your lenders. Check if you can get a more favorable repayment plan until you sort things out. 

Your lenders may offer hardship programs with benefits like lower monthly payments or a reduced interest rate for a time. This can help you stay ahead of your debt, and even pay it off faster.

Tips for managing your debt to reduce debt stress

There are a lot of financial tools and products you can use to simplify, consolidate, or reduce your debt. Consider these options.

Debt consolidation loan

A debt consolidation loan is when you use one large loan to pay off multiple smaller debts. 

Consolidation can help relieve debt stress by putting all of your debt in one place, giving you just one monthly bill and due date to manage. You may also qualify for a lower interest rate on the new loan, which reduces your monthly payment and overall cost to repay your debt.

You may also decide to get a longer repayment term on your consolidation loan. This could lower your monthly payment, but it means you make payments for longer, and it may cost more in the end.

Credit card balance transfer

A credit card balance transfer is when you move credit card debt from one card account to another. This can be a strategy for consolidating debt, but it's primarily used to reduce interest rates. 

Balance transfers are especially useful if you qualify for a card with an offer for a reduced APR (annual percentage rate) on transferred balances. Some balance transfer offers go as low as 0% APR for a set period.

You can use a balance transfer offer to pay off debt faster, or to park some debt at no or low interest while you focus on paying off more expensive debt. Just watch out for the balance transfer fee—most credit cards charge 3% to 5% of the total transferred balance for each transfer.

Home equity loan or line of credit

Your home equity is the market value of your home minus your mortgage balance. For example, if your home’s value is $250,000 and you have a mortgage balance of $150,000, your equity is $100,000.

Some lenders let you borrow against your home equity in the form of a home equity loan or line of credit, which can then be used to consolidate debt. Home equity loans also typically have lower interest rates than credit cards or personal loans.

How much you can borrow depends on your equity and your qualifications (income, credit, existing debt, etc.), but it can be up to 90% of your equity. The potential downside is that your home is the security for the loan, meaning it's on the hook if you can't repay your home equity loan according to the terms.

Debt resolution or debt settlement

If you’re struggling to repay debt, consider debt resolution. Debt resolution is negotiating with your lenders, asking them to accept less than the full amount owed. 

You can negotiate with banks and credit card companies on your own, or get help from a professional debt settlement company. They can negotiate with your lenders on your behalf. 

This method is worth considering if you’re already delinquent on some or all of your debts. Creditors usually won’t negotiate if you’re current, because they have no reason to believe you can’t keep making your payments. 

If you had every intention of paying off your debts but now you can’t, debt resolution might help you. There are some pros and cons to debt resolution, so it’s best to talk to a debt consultant about your specific situation.