Debt reduction has become a top concern for many Americans. The fallout from the economic recession has left millions of people facing overwhelming financial crisis. The unprecedented wake-up call has forced consumers to drastically reduce spending and reassess personal finance strategies.
To successfully achieve paying off debt, you should first determine which strategy best suits your needs. The type of debt help required depends on the type of debts owed. Most debtors can benefit from using one strategy, but those with staggering debt loads may need to incorporate two or more tactics to achieve their goals.
Here are a few options that you can have. The following are the best strategies you can utilize to pay off your debts.
Best Strategies to Pay off Debt
1. Stop the rising of your debt in its tracks
In order to be able to reduce your debt, you need to first stop it from increasing any further. You can do this by cutting out any extra expenses that you might be indulging yourself into; this will include spending too much on restaurants, theaters, or even any other hobbies that you might have such as video games.
Spend only on your bare necessities. Remember, if you do this for some time, you will then have enough to spend more liberally.
2. Pay off debt quickly to avoid high interest rates
In an attempt to pay off your debts, do not just pay off debt the minimum stipulated amount but try to pay off as much as you can. Each time you pay, try to increase the amount. This will enable you to eliminate the loan as soon as possible and avoid the high interest rates later. Consider different ways of making extra money to pay off debt faster.
But is it better to pay off debt or save money? If you don’t have any money saved, it might be wise to pay off the minimum amount of your debt each month, until you have saved up an emergency fund for yourself.
3. Go for debt consolidation
In case you are one of those people who has used and abused one credit card after another, only to land in multiple debts, then the best option for you is to consolidate your debts. You can seek the help of some professional debt consolidation services. They will help you through the process and also negotiate terms for you with your creditor. As a result, you can get reduced rates of interest, reduced or waived penalty charges, reduced outstanding debt amount or improved terms of repayment.
All this can work in your favor and you will be able to pay off your debts sooner than you might have thought.
Now, when you seek help from some consolidation services, it is important to seek help from some reputable and credible company or agency. They will be able to do better negotiation and will also be able to advise you better on whether this option will work for your financial situation or not. This is important because not everybody can benefit from consolidating their debts.
You can benefit a lot if you choose the right debt counselor for your financial problems.
4. Debt settlement
Debt settlement is best suited for debtors carrying high levels of debt. Debt settlers negotiate with creditors to reduce outstanding balances or interest rates. Many debt settlement companies claim they can slash debt by as much as 60-percent. However, consumers must pay monthly maintenance fees which often amount to nearly the same amount as the reduction.
Debtors should calculate the true costs of services before entering into a contract with debt settlers. Debtors may want to attempt creditor negotiation on their own. Creditors are sometimes willing to accept less than the full balance if debtors offer a lump sum cash payment and reasonable payment plan.
5. Credit Counselling
Nearly everyone can benefit from credit counseling, but this debt reduction option is particularly helpful to borrowers drowning in debt. Credit counselors can help debtors develop a get-out-of-debt plan and might be able to assist with creditor negotiations.
6. Filing for bankruptcy
This is a very difficult decision to take and you should not go for this option unless it is absolutely the last resort for you. The reasons are obvious. This will have a big impact on your credit history and it will take years to recover from its negative impact. However, sometimes we go so way ahead with debts that this is the only option that remains.
Individuals considering personal bankruptcy should obtain credit counseling through a U.S. Trustee approved credit counseling agency. New bankruptcy laws require debtors to obtain credit counseling before receiving protection through the court. Oftentimes, credit counseling can help debtors avoid bankruptcy altogether.
The U.S. Trustee program is governed by the Department of Justice. Many of the approved credit counselors are non-profit organizations offering low- or no-cost services.