Top Strategies For Help Getting Out Of Debt

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Do you cringe when you see an unknown number on your caller ID? Avoid opening the mail? Debt is stressful. And the more debt you have, the more hopeless you can feel. Even if you keep up with your monthly payments, your debt keeps growing every month.

When drowning in debt, it may seem like there is no end in sight. But you can take control of your finances when you follow some top strategies for help getting out of debt.

What to know about digging yourself out of debt

You can dig yourself out of debt, but be prepared to face it head-on. Take ownership of your debt by writing down who you owe money to, how much you owe and the interest rate. Even if you owe an astonishing amount of money, remember that there is always a way to get out of debt. Now is the time to get organized and make a plan to pay down your debt. 

7 ways to get out of debt

No matter how much you owe, you can control your finances. Below are seven tips for getting out of debt.  When armed with a plan of action, you can pay off your debt smartly.

Make more than the minimum payment

You can pay down your debt faster when you make more than the minimum monthly payment. While you’ll stay in good standing by paying just the minimum, interest accrues on your unpaid balance each month. This drives up what you owe, and your debt becomes far more expensive. And as more of your monthly payment goes toward interest, it takes longer to pay down what you owe.

Put any excess money toward debt

If you have extra money in your budget, put it to good use by paying down your debt. The additional funds reduce the principal balance of your debt. Not only can you pay off what you owe faster, but you will pay less interest.

Consider refinancing 

Monthly payments include both interest and principal. By refinancing, you could bring your interest rate down. You can pay down debt faster because more of your monthly payment goes toward what you owe, not interest.

Attempt to settle your debt

Creditors just want to get paid. You may be able to offer a reduced lump-sum amount in exchange for settling your debt in full. Not only can you settle your debt for less than you owe, but you can also avoid the extra interest costs if you continue to make monthly payments.

Stick to a budget

You can’t get your spending under control if you don’t know where your money goes. When creating a monthly budget, you create a spending plan that aligns with your financial goals. If you are in debt because you overspend, now is the time to scrutinize where your money goes.

List out what you make each month and what you need to pay for your essential household expenses. To help you stay on track to get out of debt, build in the amount you want to pay off each month.

Whether you focus on saving money or getting rid of debt, a budget acts as a guide to help accomplish your financial goals.

Try the snowball method 

The debt snowball method focuses on paying off your smallest debt first. Under this method, you attack one debt at a time while making minimum payments on the others. Once this debt is paid in full, take that payment and apply it to the next smallest debt on your list. Keep going until you have paid everything off.

At the start, you may not see any cost savings under this method. But, the snowball method gives you the feeling of accomplishment as you pay each debt off.

Try the debt avalanche method

Under the debt avalanche method, you first focus on paying off the costliest debt. If you can get rid of debt with the highest interest rates first, you’ll save money in interest and fees. 

Are debt consolidation loans a good idea?

With debt consolidation, you can combine multiple debts into a single loan. You can apply for a debt consolidation loan through a bank, credit union or a debt consolidation company.

Some of the advantages of debt consolidation loans include:

 ·         Making one monthly payment

·         Potentially getting a lower interest rate

·         Reducing calls from collection agencies

·         Boosting your credit score in the long run

 There are drawbacks to debt consolidation loans:

·         Upfront cost

·         May take longer to pay down

·         One high monthly payment

Before you consolidate, you should consider the type of debt you owe. If you roll unsecured debt into your mortgage, you could risk losing your home if you can’t make your monthly payment. Student loans often have more favorable terms and repayment plans, which you can lose if you consolidate these into a private loan.

Finally, you should understand the terms of your debt consolidation. Some loans require you to put up collateral, such as your home. If you fall behind in payments, you could lose your home.

Is filing for bankruptcy a good idea? 

Bankruptcy allows consumers who face an extreme financial crisis to find relief from the debt they owe. Bankruptcy is a legal process that gives people the opportunity to start over. Most individuals file for Chapter 7 or Chapter 13 bankruptcy.

Chapter 7 bankruptcy applies to unsecured debt, such as credit cards, medical bills and personal loans. It does not eliminate secured debt, student loans or child support. While certain assets may be liquidated to pay your creditors, most people who file for Chapter 7 bankruptcy don’t have sufficient income and assets to pay their debts off in a reasonable amount of time. Unsecured debt that remains is discharged.

Chapter 13 bankruptcy applies to people who are significantly behind in what they owe but have sufficient income and assets to pay it off over time. Under Chapter 13, debt is reorganized, and you are put on a plan to pay off what you owe, typically between three and five years. Seeking protection under Chapter 13 may prevent foreclosure or having your car repossessed.

Here are factors to consider before pursuing bankruptcy to get out of debt.

 Pros of filing bankruptcy:

·         Halt foreclosure

·         Creditors and collection agencies must stop contacting you

·         Keep your car from being repossessed

·         You may be able to keep most of your assets

·         May eliminate most — if not all — your unsecured debt

Cons to filing bankruptcy:

·         Expensive

·         Stays on your credit report between seven and 10 years

·         May be difficult to rent or get credit

·         Bankruptcy may not discharge all debt

·         Could limit future employment opportunities

Bankruptcy is not a decision to be taken lightly. While it may get you out of a jam in the short term, there are long-term implications to going bankrupt.

Dig yourself out of debt – for good!

Debt is tough to deal with. Debt wreaks havoc on your finances and takes an emotional toll on you and your family. Sometimes, it may seem like each monthly payment you make gets eaten up by interest and fees.

But even if you feel like you are drowning in debt, some strategies can help you pay down what you owe. Taking control of your finances isn’t easy, but you can do it. Whether it is keeping a watchful eye on what you spend or making extra payments, there are ways to get out of debt.

What’s the average debt per person?

In 2021, the average consumer debt balance was $96,371

What’s a debt-management plan?

Under a debt management plan, you make one monthly payment to cover your unsecured debt. A debt management plan is not a loan but can make it easier to repay your debt.

Is debt settlement a good idea?

A debt settlement company negotiates a lump-sum settlement to clear your debt. Offering a lump-sum settlement can help get your debt under control. However, debt settlement is costly, and there is no guarantee that every creditor will accept your terms.

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