Personal Debt Management Solutions for Quickly Paying Off Debt
Everyone has debt. If you own a home, obtain a car loan, or open a credit card, you have debt that you need to pay off.
When these debts start to pile up, you may struggle to keep up with the monthly payments. If you have significant debts, you need a strategy for paying them off while still maintaining your other financial obligations such as your rent or mortgage and basic living expenses.
The following Personal Debt Management Solutions can help you conquer your debt before it spirals out of control.
Determine How Much You Owe
Before you can develop an effective plan for managing debt, you need to know how much you owe. Create a list of all your debts, such as credit cards, hospital bills, delinquent accounts, and loans.
Write down the amount of the debt, the minimum monthly payment, and the due date. Total the debts and payments to gain a better sense of your obligations.
If you have lost track of any debts or delinquent bills, obtain a credit report. Your credit report should include all your current debts and the names of the creditors, helping you determine who you need to pay.
Determine How Much You Can Pay
After you know how much you owe, figure out how much you can pay each month. Total your net income for the month, which is your income after taxes.
Add up all your major expenses including your rent or mortgage, utilities, and services. Add living expenses to this total but do not include your other debts such as credit cards, loans, and medical bills.
Subtract your expenses from your income. The remaining amount is how much you have available each month to start paying down your debts.
Start Paying All Debts on Time
Instead of trying to juggle bills and pick and choose what you pay each month, start paying all debts on time. Make the minimum monthly payments to avoid adding unnecessary finance charges and fees.
Missing payments simply makes it harder to catch up. However, paying the minimum amount may still take years to pay off the debt.
Prioritize Your Debt Payments
At some point, you will need to start paying more than the minimum payment. Prioritize your debts and start paying them off one at a time.
Begin with the debts that carry the highest interest rates. Typically, credit cards have the highest rates, increasing the total amount that you pay before reaching a zero balance.
Consolidate Multiple Major Debts
If you have multiple credit cards with large balances totaling over $10,000, consider consolidation. Consolidating your debt may help you limit the total interest that you pay, especially if one of your credit cards carries an extremely high rate.
Debt consolidation also makes it easier to keep up with the monthly payments. Instead of dealing with multiple monthly payments, you have one minimum payment.
You have several options for consolidating debt, including:
- Balance transfers
- Home equity loans
- Personal loans
- Debt consolidation companies
Each option has its own pros and cons. For example, working with a debt consolidation company often requires additional fees. While the company may reduce your financial burden, you still need to pay them for their services.
Use a Balance Transfer to Reduce Interest
Many credit card companies offer special promotional interest rates for balance transfers. If you carry your debt over from one credit card to another, you may enjoy 0% interest for a few months.
If you have a card with an extremely high interest rate, transferring the balance to a card with a lower rate helps you repay the debt sooner and save money on interest.
Take Out a Home Equity Loan
Taking out a home equity loan is another option for consolidating debt if you have equity available in your property. These loans often have lower interest rates compared to credit cards and short-term loans.
Keep in mind that your home is collateral for this loan. If you fail to make the payment for the home equity loan, you risk losing your house.
Obtain a Personal Loan to Pay Off Debt
If you do not have equity, you can get a short-term personal loan to consolidate some of your debt. Securing the loan with a car or other asset helps you obtain a lower interest rate and lower monthly payments.
With an unsecured loan, you may still obtain a lower interest rate compared to some credit cards. However, you should always compare the rates before finalizing the loan.
When you continue to miss payments, you keep racking up late fees and other charges. If you cannot meet the minimum payments, it is still better to pay something.
If you try to ignore the problem, the lender or creditor will simply add more late fees. You also risk allowing the account to become delinquent, which lowers your credit score and limits your future ability to obtain loans.
Instead of paying nothing, set up a payment plan. Creditors want their money and will work with you to establish a new minimum payment that you can afford. In some cases, the creditor may offer to waive existing late fees if you stick to an arranged payment plan.
To negotiate a different payment plan, simply contact the credit card company, bank, or lender.
Conclusion: Debt Will Not Eliminate Itself
Millions of people fall into a cycle of spiraling debt. As your debt increases, it becomes harder to pay it down, especially when you find yourself scraping by to pay the minimum payments.
Allowing yourself to fall further into the hole makes it even harder to get out of debt. To conquer your financial burdens, you need to create a personal debt management plan.
Start by reviewing your total debts. Set a budget and determine how much you can pay off each month. You can also work with creditors to negotiate lower monthly payments or new repayment plans.
As a final suggestion for personal debt management solutions, avoid taking on new debt. The only reason to obtain new debt before paying off your existing obligations is to consolidate debt to get lower interest rates.
#personaldebt #personaldebtmanagement #debt #debtfree