Debt can be intimidating, but it’s possible to emerge unscathed from its clutches. Although it may require sacrifices now, the reward of freedom from debt will surely outweigh them later on.
Start by changing your spending habits. Reduce spending on things such as eating out and entertainment costs; whenever possible pay with cash instead of credit.
1. Get a Debt Consolidation Loan or Credit Card
Credit card companies sometimes provide temporary, low- or no-interest balance transfer deals that help you consolidate debts into one payment, but these don’t solve the underlying cause of why debt accumulates in the first place.
Apply for a personal loan or home equity loan to consolidate debt, though be wary that these typically carry higher interest rates than credit cards and may require substantial down payments.
Consider opting for a debt management plan as an alternative, which can lower interest rates and make repayment easier. Instead of making multiple payments to creditors directly, one monthly payment would go toward credit counseling agency, who in turn would pay your creditors on your behalf. You will have to be willing to make sacrifices like eliminating entertainment costs or cutting back on fitness classes or protein powder to manage your finances properly – ultimately this worthy goal will get you closer to becoming debt free!
2. Get a Debt Management Plan
Are You Struggling with Debt? To reduce spending and create a plan to pay down credit card balances, create a budget outlining all expenses in one month such as take-home pay, food, bills, debt payments and “wants” like entertainment costs.
An NFCC-certified credit counselor can assist with setting up a debt management plan, in which payments are sent monthly to a nonprofit agency that then distributes it among creditors. You may even be able to reduce interest rates, saving both time and money; in addition, less collection calls should reduce stress and anxiety levels.
Keep in mind, however, that even with debt management programs you will still owe debt – just at a reduced rate and over an extended timeframe. Furthermore, consider other alternatives like debt settlement or bankruptcy before enrolling in any debt management programs; both could cause irreparable damage to your credit rating while necessitating giving up credit cards during this process.
3. Get a Debt Settlement or Bankruptcy
If your budgeting efforts have failed to get you out of debt, and other measures haven’t worked either: there may be two debt relief solutions which might work better:
Debt settlement programs involve hiring a company to withhold payments to creditors in an attempt to negotiate for a lump-sum settlement deal with them. Although this approach often fails, withholding payments could hurt your credit score in the process.
Filing for bankruptcy will discharge some debts while leaving an adverse mark on your credit report that can make borrowing more costly and delay financial recovery. Filing bankruptcy might not be for everyone, but if it’s your only viable option then finding an experienced debt counselor or bankruptcy attorney should be the priority.
4. Try a Debt Snowball
People tend to follow debt repayment plans more successfully if they have a structured plan with clear goals in place. A popular debt snowball method, popularized by Dave Ramsey, involves listing all of their debts by size and paying off the one with the smallest balance first while only making minimum payments on others; any extra funds from paying off one debt go toward another until all have been cleared up.
This method offers regular “wins” that can keep motivation high, but may not be appropriate for large debts due to its disregard of interest rates. Some experts advise using the debt avalanche method instead. To make sure your plan sticks, establish a budget and cut spending elsewhere such as entertainment and dining out.