6 Ways to Pay Off Your Debt
You might associate massive debt with uncontrolled spending and visualize a shop alcoholic who can’t put down her credit card. It’s important to understand that numerous factors contribute to high debts. For example, someone who loses his job might rely on credit cards for essentials, such as food or gas.
Regardless of the reason for debt, owing a massive amount in credit cards and loans might send you into panic mode. Your credit score is likely to drop from the higher balance; and if unable to manage the debt, you might get hit with late fees or additional interest charges.
With a clear debt management plan you can pay off your high debt balances and regain control of your finances.
1. Get away from minimum payments: Yes, minimum payments are low and affordable. But if you’re serious about eliminating your debt and ultimately improving your financial situation, aim for higher monthly payments. Determine a payoff time for debts in months. Take your total debt amount and divide this figure by this number of months. This provides a rough estimate of how much you’ll need to pay towards your balances each month to become debt free.
2. Take money from savings: You might frown at the idea of taking money from savings to pay off your debt. However, this method eliminates interest payments each month, provides peace of mine, and helps improve your credit score.
3. Credit Consolidation: Work with an agency to consolidation your credit card debt and loans into one account. Merging your balances simplifies your finances and alleviates multiple account management. What’s more, credit consolidation agencies have the know-how for negotiating reduced interest rates, which saves you money each month.
4. Balance Transfer: Paying a high interest rate on credit cards can slow your debt elimination efforts. Move all your balances to a low-rate or zero-rate credit card and you’ll pay off the account faster. The less interest you owe the card company each month, the more money the company applies to your actual principal.
5. Home Equity: Talk with your mortgage lender and discuss eligibility requirements for a home equity loan or cash-out mortgage refinance. A good credit score and at least 20 percent equity are typical requirements; and if you qualify for financing, you can likely borrow cash from your equity and use this cash to eliminate credit card and loan balances.
6. Settling Debts: Become debt free by negotiating a debt settlement with your creditors. This program or option doesn’t work for everyone, and creditors typically agree to settlements as a last ditch effort to recover funds. With this option you pay less than the balance owed to settle the account. Understand, however, some creditors require proof or evidence of financial hardship before considering a settlement offer.
Related: Consumer Debt Still Up
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