How to get out of debt?
These are the 9 best ways
It may not be as easy as it seems to get out of debt. We are saying this on behalf of thousands of consumers with accumulated debts that don’t water money trees every morning in their gardens. In some cases, it is challenging to pay for your monthly expenses and remain with extra money to save. If this is the case, how can you even afford to repay your loan or credit card debts?
The year 2020 started fairly well. According to a study by Fidelity, an investment firm, a large percentage of Americans were optimistic about achieving financial freedom this year.
But the Coronavirus has now forced these people to go back to the drawing board. Most people received unpaid leave from their employees and others were even retrenched and this made it harder for them to achieve their dream to pay off debt and get their financial life back on track.
Lucky enough, there are still ways you can use to get rid of debt fast and leave the misery that comes with accumulated debt behind. We are going to discuss some of these strategies to guide you on how to get out of debt.
Pay a higher amount than your monthly minimum
If you can, spend a higher amount than your monthly minimum to repay your loans and credit card debts. The reason why these method works is because any extra amount you pay on top of your monthly minimum reduces the principal amount.
And the more money you use for loan repayment the faster it will be to get out of debt. However, it will only work when your lender or lenders don’t impose prepayment penalties.
Consider the debt snowball method
The snowball method is simple to understand. Here, paying off debt starts from the smaller ones to those that are more demanding. Over time, you will have cleared all your smallest debts and remain with only a few to pay.
The more you are dedicated to this method the less time it will take for you to remain debt-free. Someone once said that numbers don’t lie, and a large percentage of consumers who have tried the snowball method now have a success story to tell.
Use a personal loan to consolidate the debts
If you have more than one loan, the best way to go about them is to apply for a debt consolidation loan. Debt consolidation simply means taking out a loan, usually with a lower interest rate than your current debts, and using the funds to pay off all your loan balances.
After you are done with the debts, you will not remain with only one loan to pay with a lower interest rate.
Personal loans are the best option for debt consolidation such as payday loans since they are manageable in the sense that they come with fixed monthly payments and a fixed interest rate. It is therefore easier for you to know the amount of money you pay towards the loan every month and the exact time it will take to clear the loan payments.
Credit card balance transfer
Transferring your outstanding debts from one credit card payment to another is what is referred to as a balance transfer. With a 0% APR credit card debt, you won’t have to pay interest rates during the introductory period, which is usually between 9 and 21 months.
There are, however, cards that may charge a balance transfer fee. The best thing about balance transfer credit cards is that you can continue making debt payments but with no interest. This means that you can clear the debt faster.
Request for a lower APR from creditors
If your credit cards have accumulated an extremely high-interest rate, it may at times help to ask for an interest rate reduction from the credit card issuers. Since the card issuers will also want their money back, it is likely that they will make your payments more affordable.
If they say no, don’t despair. There are still other options worth considering.
Find ways to earn extra cash
If your paycheck is not enough to cater to your monthly bills and at the same time pay off your loans, try to find other ways of getting extra money. This can range from selling stuff you don’t use anymore, getting an extra job, starting a small business if you can, or even working overtime. And if any of these ways work for you, ensure that the initial profits go towards debt repayments.
It won’t help much if you allocate the extra money for other unnecessary expenses as soon as you get it.
Reduce your expenses
By reducing your expenses, you will free some money to go towards debt repayments. Besides, this option is easier than working overtime. It is however possible and highly recommended to go with both options at the same time. To start, stop spending money on luxuries for a while. These are the things that you can do without, like entertainment or going on vacations.
It can also be the little expenses like reducing the amount of money you spend on groceries or cutting your hair at a cheaper barbershop until you put your finances back in order. And as we have already said, just ensure that the freed cash goes towards repaying your debts.
Create a budget
This is one strategy that has been said and repeated over and over again. It actually works wonders. You only need to write down your monthly payment and allocate money for each. After this, you will only spend money according to your budget and this will help reduce unnecessary spending habits and with time, you will have control over your finances.
You may utilize budgeting applications and software packages or jot down your own budget using pen and paper.
After you’ve developed a budget, pull out your bank statement and decide which expenses you’ll pay off first with the extra money.
Another advantage of creating a budget is that it makes you responsible and reduces the temptations that come with spending.
Negotiate for a lesser amount
If you feel that the amount owed is too much for you to afford, call your creditors, and negotiate for a smaller amount. You can either do this on your own or hire a debt settlement firm that offers this service at a fee. But as much as paying a lower amount than what you initially agreed with the lender can help you get out of debt, there are also some risks involved.
These risks are also mentioned by the Federal Trade Commission.
For example, a debt settlement business may ask you to cease repaying your obligations for a period of time while they negotiate better terms with your creditors.
The fact that you will not be paying your obligations during this time might affect your credit score negatively.
Avoid piling more debts
Last but not least, getting out of debt can only be a nightmare if you continue accumulating more debt. This means you should avoid buying things you don’t need with credit cards and avoid taking out new loans.
It is easy to come up with a debt repayment plan. When you are in the process of paying off your debts, don’t use your credit cards during this period. And don’t apply for any other loan unless you really have to. Live according to your budget and you will find life to be much easier and affordable this way.
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