- Money Management
Understanding and Managing Debt
Debt affects many caregivers, from medical bills and credit card balances to personal loans. It can be hard to manage while also handling the demands of caregiving. Understanding how debt works and how to manage it can help you build a more secure financial future.
Types of Debt
Debt comes in many forms. Some debts are considered “secured,” which means they’re associated to property like your home or car. Others are “unsecured,” like credit cards or medical bills, which don’t require a physical item to secure a loan. These are also known as collateral.
What It Means | Examples | Risk / Impact | |
|---|---|---|---|
Secured Debt | Backed by something valuable (collateral) the lender can take if you don’t pay. | Mortgage (house), Auto loan (car), Secured credit card | Easier to get, often lower interest, but you could lose your house, car or deposit if you fall behind. |
Unsecured Debt | Not tied to collateral. Lender relies on your promise to repay. | Credit cards, Medical bills, Personal loans, Student loans | Usually higher interest, approval based on credit score. Risk is damage to your credit score or being sent to collections. |
To learn more about how credit works and how it relates to debt, read Credit Scores Made Simple.
Understanding your debt
Understanding what you owe can help you make informed decisions. Here are several methods to help you pay off debt for you to consider:
- Debt consolidation: Combine multiple debts into one loan with a lower interest rate.
- Snowball method: Pay off the smallest debt first, then move to the next.
- Avalanche method: Pay off the debt with the highest interest rate first.
- Negotiation: Contact creditors or collection agencies to request a payment plan or reduced settlement amount.
Prioritizing your debts
Always focus on debts that affect your housing and income first like rent, auto loans and child support before paying off lower-priority debts like medical or credit card debt. Start by listing all your debts, including amounts, interest rates and due dates. This will help you prioritize and create a repayment plan that works for you.
Use this guide to determine which debts to pay first:
Priority Level | Type of Debt | Why it Matters |
|---|---|---|
High Priority | Rent/mortgage, auto loans, child support | This affects your basic needs: housing, transportation and income |
Medium Priority | Utility bills | May lead to service disruption if not paid |
Lower Priority | Medical bills, credit cards, personal loans | Less immediate impact, often negotiable |
Tips for managing low priority debt
Type of Debt | Tip for Managing It |
|---|---|
Credit Card Debt | Call your credit card company to negotiate lower interest rates, especially if you’ve missed payments or can’t afford the minimum. |
Medical Debt | Request an itemized bill to dispute inflated charges; medical debt typically takes a year before appearing on your credit report. Some nonprofit medical facilities will forgive medical expenses for qualifying income groups. |
Utility Bills | Contact the provider to set up a payment plan or request forgiveness for older balances. |
Student Loans | Explore income-driven repayment plans or deferment options if you’re facing financial hardship. |
If this process feels overwhelming, there are services that can help. Here are some trusted resources to help you begin your research:
- Credit Karma: A free tool to monitor on all your debt in one place. They also offer suggestions on how repayment efforts can affect your score.
- National Debt Relief: A reputable company that helps negotiate with creditors and reduce overall debt. This can be a good option for busy caregivers who need extra help or have limited time
Managing debt takes clarity, strategy and the confidence to speak up for yourself. Knowing your accounts, exploring payment plans and learning your rights can help you take action.
