When it comes to repaying a great deal of debt, it’s important to remember it took time to amass it, so it’s also going to take some time to unravel it. In other words, there are no real shortcuts to debt repayment. However, these smart debt repayment strategies can make it easier to accomplish and save you some money besides.
Pay Attention to Your Finances
Debt has a way of creeping up on people. For this reason, it is very important to review all of your credit card statements, bank accounts and other financial information on a regular basis. Most experts recommend doing this monthly.
This is particularly critical to keeping your debt in hand. The least costly debt repayment strategies depend on having a credit history good enough to take advantage of them.
Another key factor is recognizing why your finances are becoming problematic. Maybe you need to adjust your spending habits. Perhaps you’ve become too comfortable making purchases on credit and not paying your balances in full each month. Whatever the cause, you must root it out and put something in place to stop it. Otherwise, you’ll doom yourself to a cycle of paying off debt, creating more debt, paying off debt, creating more debt—ad infnitum.
Debt Repayment Strategies
Debt consolidation can be a powerful debt repayment tactic. However, to get the most from it, you’ll need to have the highest credit score possible. This will enable you to refinance multiple obligations into a single one—at a reduced interest rate—with a lower overall monthly payment.
Yes, you can accomplish debt consolidation with a low-ishcredit score. However, whether you’re considering a zero interest balance transfer credit card, personal loan, or tapping into the equity you have in a property, the higher your credit score, the less it will cost you to do so.
Debt snowballing and debt avalanching are effective methods of attacking and eradicating debt as well. Most people look at their credit card statements and pay as much as they can on each one every month. While this is a good way to ensure your payments are always timely, it will take longer to pay them off. This, in turn, will find you paying more in interest.
Instead, make minimum payments on all of the accountsexcept the one with either the lowest balance (snowballing) or the highest interest rate (avalanching). Put all of the rest of the money you’d been paying toward that debt. Continue in this fashion until it is paid in full—then apply that methodology to the next one in line, continuing until they’re all paid in full. Snowballing tends to deliver a faster result, while avalanching will result in a lower overall expenditure.
Credit Counseling/Debt Management enlists professional help to provide debt repayment guidance. Working with a counselor introduces budgeting advice along with a host of other useful tactics and services to help you get things back on track. A credit counselor may recommend entering a debt management program in extreme instances, in which case you’ll hand off administration of your accounts to the counselor.
This will entail surrendering control of your finances to a third party, who will negotiate with your creditors in an effort to secure penalty and interest waivers on your behalf. You’ll send your bill money to the counselor each month, who will then pay your creditors in accordance with the agreements they’ve reached with your creditors.
As undesirable as this might sound, it is a sound approach. Plus, when it comes to filing for bankruptcy vs credit counseling, the latter is a far more desirable option.
These smart debt repayment strategies have proveneffective for many people. The key, as we said at the beginning, is catching the situation before it gets so far out of hand your credit history begins to suffer. While there are other strategies you could employ if that’s already happened, catching debt problems early makes them much less costly to resolve.