Being in debt can be a stressful experience. It can feel like you’re barely scraping enough money together to cover your monthly expenses and save a few extra bucks just in case something unforeseen comes along. Since most people are naturally optimistic and it's common to encounter financial ups and downs in life, many people disregard debt issues hoping their financial situation will improve. These 5 ways to help reduce debt can help rebuild your financial stability.
Create a Comfortable Repayment Plan
One of the more popular debt reduction strategies is making the bare minimum monthly payments on your credit cards. This is a smart idea to many people because the short-term cost is low. However, this can be misleading because doing so might leave you in debt and make you pay interest a lot longer than you would if you used other debt relief methods.
Paying the minimum monthly payment is frequently the worst debt repayment plan compared to a regular debt relief program. You should create a repayment plan that aligns with your income and budget. Do not settle for paying the minimum amount. Find an amount that you’re comfortable paying every month that exceeds the minimum payment.
Credit counseling aims to organize your debt payment schedule while attempting to reduce interest rates — a type of debt relief service. The counseling organization often receives a single monthly payment. In turn, they distribute the funds to your creditors on your behalf, ideally at a lower interest rate so you can pay off the debt more quickly. You'll still have to repay your loan in full, plus interest with credit counseling. Additionally, compared to other debt relief programs, these programs have relatively low completion rates and are intended to take 3 to 5 years to complete.
Before choosing a debt relief company, it's crucial to do your research to ensure that they are a respectable business with your best interests in mind. However, their main objective is usually merely getting rid of your obligations so that you may get back on track financially. In some circumstances, debt relief businesses may be able to lower your interest rates or monthly payments.
When you consolidate your debt, you take out a bigger loan with a lower interest rate and use it to pay off your higher-interest outstanding debts. With this kind of debt relief program, you must make one monthly payment, which is, in theory, less expensive than the total of your previous payments for all your unsecured loans and credit cards. This can be an excellent alternative for debt relief if you have bills from several different sources and have the credit to get a favorable interest rate on a consolidation loan.
If you’re having trouble managing your debt, debt consolidation programs for credit card debt, medical expenses, and other unsecured debt are possibilities worth looking into. Essentially, a business buys your debt from lenders at a discount and eliminates any outstanding obligation.
Debt Negotiation or Settlement
In contrast to the first two debt relief plans, debt negotiation involves a possible 50-70% reduction in your principal balance while also lowering your interest rates. Because you end up paying a lot less overall and interest accrues at a much slower rate when you negotiate your debt, it’s often quicker and less expensive to get out of debt through this option than through either debt counseling or debt consolidation.
According to IRS, you can file for bankruptcy if you want a trustee to try and sell your assets to pay your debtors. While an extreme decision, personal bankruptcy may be the only option if a person cannot pay their debts. Following a formal declaration of bankruptcy, the debtor’s ability to obtain credit is greatly affected for years, and the process of collecting debts from creditors is stopped.
Depending on your financial position, one or more of the five debt relief solutions may be the best or only choice. Each option has advantages and disadvantages. Remember that clearing your debt takes planning and a considerable commitment. These small, practical habits can help you succeed on the journey to a debt-free life. Of course, it may take some time to clear your debts. Focusing on your goal and strategically moving toward that goal is the most important thing.