It can be overwhelming and stressful to have a lot of debt, especially when you have limited income or when you have multiple creditors, due dates and payment arrangements. If you are struggling to pay down the debts you have accumulated, there are several programs available that can assist you in becoming debt-free and regaining your financial freedom.
Not every debt program is right for each individual person. The best debt program for you will depend on your income, personal preferences and the amount of debt you have accumulated. Some debt-related programs will require more involvement than others and some programs have lasting consequences, such as derogatory marks on your credit score. Therefore, it is important to learn more about each of the options that may be available to you in order to find a solution that you could realistically commit to in order to achieve financial freedom.
Learn How to Calculate and Review Your Debt
In order to determine which debt solutions may work best for you, it is important to take a close look at your finances, including your total amount of debt, the types of debt that you have, your income and your monthly expenses. In doing so, you will have a better idea of the amount of debt that you have and how much you could realistically afford. Reviewing your income and monthly expenses can also provide you with the opportunity to create a budget that includes all of your expenses plus a little additional money for spending or to use in case of an expected expense.
When reviewing each debt solution, it is essential that you consider how long it might take you to pay off your debts compared to any current arrangements that you have while keeping the amount that you can afford to pay towards your debts in mind. You should also compare how much each solution might cost you in comparison to your current arrangements. For example, will a new solution reduce your interest rates and potentially save you money?
Discover How to Take Advantage of Credit Counseling
If you are ready to pay down your debts and take charge of your financial freedom, it is important to know that you don’t need to go at it alone. Credit counseling is an often free service that is provided by nonprofit organizations. These organizations can assist you with reviewing the debt solutions that may work for you, help you create a realistic budget and can provide you with a strategy that can help you pay off your debt within three to five years, if possible.
Find Out How to Use Debt Consolidation to Pay Down Debts
If you have several sources of debt and multiple creditors, debt consolidation may be a useful tool that can help you pay down your debts more quickly and, potentially, while saving money on interest. Debt consolidation is the process of combining all of your separate sources of debt into a new, single debt. Not only can having a single source of debt make payments easier and more convenient, but you will also save money if you are able to obtain a lower interest rate than what you had for previous debt accounts.
Generally, debt consolidation can be done by applying for a low-interest personal loan or by utilizing a balance transfer credit card and paying off all of your debt during the zero-percent-interest period. Should you choose to use a credit card, it is crucial that you budget in a way that allows you to pay off all of the debt before the promotional zero-percent-interest period expires, as balance transfer cards typically have very high-interest rates following the promotional period.
Considering Dent Management Plans
In some cases, a debt management plan can help you to pay off debt faster and at a reduced interest rate. A debt management plan is a type of repayment plan where interest rates are negotiated with existing creditors. Generally, an escrow account is created that you would pay instead of submitting payment directly to your creditors. With only one, larger payment, it can be easier to ensure that all of your creditors have been paid each month.
Debt management plans are offered by various agencies. However, it is important to know that most of these agencies will charge a fee for use of the service. Therefore, when considering a debt management plan, it is crucial that you compare the amount of money you would save in interest against the fee that the agency will charge you before making a decision.
Reviewing Debt Settlement Options
If you have found yourself overwhelmed by multiple debts, debt settlement can help you find financial relief faster. The process of debt settlement is simple. You negotiate with creditors in an attempt to lower your overall balance. In exchange for a reduced balance, you would either be required to pay the full amount of the new balance or make a set number of larger payments to clear the debt quickly. Since the balance on your debts is reduced in exchange for payment, you can save a lot of money through debt settlement.
While debt settlement provides several potential benefits, it is worth knowing that creditors will typically not agree to a settlement if they believe that you can pay your debt in full. Therefore, you may not be able to negotiate a debt settlement until your account has been left delinquent. This can cause some late fee charges to accrue. Additionally, your credit score will likely suffer because of the delinquent accounts.
Filing for Bankruptcy
Bankruptcy is the legal partial or total discharge of all of your applicable debt. While you can save a lot of money when ridding yourself of debt through bankruptcy, this form of legal action will have severe and lasting consequences on your credit score and history. Therefore, you should only file for bankruptcy as an absolute last resort.
After filing for bankruptcy, the bankruptcy can stay on and negatively affect your credit for nearly a decade. This can make obtaining any type of credit very difficult and any credit that is issued to you will likely include a very high-interest rate.
If you would like to file for bankruptcy, it is important to determine which of your debts can and cannot be discharged through bankruptcy. For example, federal student loans cannot generally be included when filing for bankruptcy.
Additional Tips for Paying Off Debt
In addition to the various debt solution options that may be available to you, there are several tips for paying off debt that you can benefit from. If you are trying to free yourself from your debts, it is important to:
- Address the main causes of your debt, such as overspending, and formulate a plan in preventing debt from accumulating again.
- Stop using credit cards or accumulating other forms of debt while you are in the process of eliminating the balances that you have.
- Create a realistic budget in order to determine the amount that you can pay towards your debt.