In today’s current economical climate, carrying around debt is not uncommon. However, being in debt can have a huge impact on your financial future and bad debt can cripple your credit report for years. Dealing with your debt now can save you years of trouble down the road along with unnecessary late fees and fines. Read on to discover 5 ways to get out of debt before it’s too late.
1. DIY Debt Reduction
This method involves making the minimum payments on all of your outstanding debts except for one that you will target. For the debt that’s being targeted, you’ll want to pay as much extra money towards the debt as you can. There are two strategies to use when deciding which debt to target: the snowball method or the avalanche approach.
With the snowball method you pay off the account with the smallest balance first to eliminate the debt. With the avalanche approach you work to pay off the card with the highest interest rate first. Either way, once a debt is payed off, you use the money you were putting towards that debt towards the next one until they are all eventually paid off.
2. Debt Consolidation
If you can consolidate your debts, you’ll be given a new loan to pay off your other debts. The new loan will then need to be paid off as quickly as possible. The advantage to consolidating your debts is that you get a new low interest rate and often the new payment is less than individual payments would have been.
3. Credit Counseling
Credit counseling agencies help you review your budget and figure out a debt management plan. They work with your credit issuers to reduce interest rates and they collect your monthly payments directly to be dispersed to the creditors. The upside is that this method ensures all of your debts get paid on time.
4. Debt Settlement
If your balances are exceptionally high and you cannot pay them back within 5 years, a debt settlement program may be the best choice to you. Negotiating your debts with creditors results in a situation where the creditor accepts less than is owed to satisfy the debt. This method may negatively effect your credit score, so be aware of this if you’re planning a major purchase in the future.
Filing bankruptcy is a last choice. The option eliminates all or most of your debts very quickly. It is a good choice if you are being threatened with debt collectors or lawsuits. If your income is greatly diminished to the point where you can’t make your payments, it may be a good idea to speak with a bankruptcy attorney to find out if this option is right for you.