How to Pay off Debt
Toll Free: 800-220-4318
How to Pay Off Debt
Dealing with debt is one of the most frustrating and stressful concerns a person can have. Even debt that is under control can keep you awake at night.
When debt spins out of control it can lead to one of the worst experiences of your life. And it can leave a financial scar that lasts for decades to come.
The good news is it is possible to manage debt and if you make it a priority, eliminate it entirely. Doing so requires a plan and a bit of sacrifice, but ask anyone who has successfully paid off debt and they’ll tell you it was worth it. Whatever temporary sacrifices they made were worth it to live debt-free.
If you are struggling financially and need to take a new approach or you simply want to eliminate whatever debt you have even if it’s not having a major effect on your life, there are a few things you can do.
Surpassing Minimum Payment Obligations
One of the best things to do, whether your primary goal is to pay off all of your debt or just to get yourself in a better financial position long-term, is to pay more than the minimum payment required on debts.
Credit card companies and other lenders give you a minimum amount of money you need to pay each month to avoid late fees and problems with your credit. Usually minimum payments are about 2% to 3% of the total outstanding balance. In most cases, paying only this amount will result in it taking years to pay off the debt.
Lenders set up minimum payments in their own interest. It might seem as if they are being generous by only requiring you to pay a few dollars per month toward a debt, but the truth is you are paying more – a lot more – by paying this small amount. The longer you take to pay a debt the more interest you’re charged, which benefits the lender.
Whenever possible, pay double the minimum payment owed. This might mean cutting back on other expenses, but the more you put toward debt the better.
It’s also a good idea to focus your extra payment efforts on one debt at a time. Some people refer to this as a “snowball” effect or “snowballing.”
Take a look at all of your credit card bills and figure out which has the highest interest rate. Pay the minimum amount on all the cards but this one and put all of your extra money toward this card. Once that debt is paid, move on to the next highest interest rate card. Snowballing allows you to have an organized plan for paying off debt and it ensures you reduce the total amount you’re paying toward credit card debt over the long haul.
Utilize Balance Transfers
Many credit card companies offer an opportunity to transfer an existing debt you have with another lender to a credit card they offer. They want your business and they are willing to extend generous terms, on a temporary basis, to get it. In some cases, this means you’ll be able to transfer your balance from an existing card to one with 0% interest for a limited time. If you’re able to pay off the card in that time, you’ll pay no interest. And even if you don’t pay off the balance completely, you won’t need to pay interest on what you can pay off during the promotion period.
If you’re considering transferring a balance to a no- or low-interest credit card, look for one that offers the longest promotional period as possible and that offers free or low-cost balance transfers. Some cards charge you to transfer a balance, so you need to be sure that charge isn’t more than you’d pay in interest if you didn’t transfer the balance.
Transferring an existing balance can save you hundreds of dollars and even though it requires a bit of effort to make the transfer, it’s one of the best ways to reduce and pay off your debt.
Negotiate New Terms with Creditors
Once you’ve created your own plan for paying off debt, you can contact creditors and find out if there is more that can be done to reduce the overall amount of money you’ll need to pay. In some cases, creditors will work with you to alter the terms of your loan. Many are willing to do this because they know it increases the odds they’ll get paid.
You can ask them to offer a lower monthly payment or reduce the overall interest rate. If you are struggling to make ends meet on a month to month basis, you’ll want a lower monthly payment, even though that could result in a larger payment over time. If you’re trying to reduce your overall payments, ask for a lower interest rate.
Negotiating with creditors if often a last ditch effort to avoid bankruptcy, but it can also be a way to help you pay off debt and improve your financial situation, even if you aren’t desperate. The important thing to understand is that creditors can extend flexibility, especially if they know it’s their only option for getting paid.
When All Else Fails Consider Debt Settlement or Bankruptcy
If you’re unable to make ends meet and there is no financial improvement in sight, bankruptcy or debt settlement might be your best option.
However, if you are unable to meet any more than your minimum payment obligations and you’re considering borrowing against your retirement savings or you’re at risk for losing valuable assets, bankruptcy can help you. Bankruptcy can eliminate certain debts and reorganize your finances so you’re able to pay the ones that cannot be eliminated. Whatever you do, don’t take out a home equity loan or retirement savings to pay credit card debt if you can avoid it.
Whether you’re looking to improve a less-than-perfect financial situation or you feel as if you are drowning in debt, we can help. We understand how devastating debt can be and how it weighs on all areas of your life. For more information or to schedule a consultation, contact 1.800.220.4318 for more information or to schedule a consultation.