Take Control of Your Budget
Basic financial stability is a crucial part of debt repayment. Reaching this level can be challenging, but setting up a working budget is a critical step. In any case, you need to find a way to ensure that your income exceeds your monthly expenses. When you’re in this situation, you benefit in two ways:
– You can avoid incurring new debt.
– You can use that “extra” money to pay down loans.
Note: You have two main options to generate more money than you need to spend: increase your income or reduce your monthly expenses. Your income, expenses, and budget depend on a variety of factors, including your job, family situation, and health. Creating a monthly budget that addresses your needs is the first step toward achieving debt freedom.
Use the Snowball Method or the Avalanche Method
You can definitely pay off debt without prior planning – it’s never a bad idea to throw extra money at your credit card bills. But with simple planning, you can build confidence and improve your chances of success. There are two common methods for paying off debt:
– Snowball: Pay off the loan with the smallest balance first.
– Avalanche: Focus on the card with the highest interest rate.
Snowball Method:
– Create a list of all your credit card debts and arrange them by balance size, from smallest to largest.
– Pay the minimum required on all your credit cards each month.
– If you have any extra money, put it toward the credit card with the smallest balance.
– Repeat this process monthly until you pay off your smallest balance. Celebrate this win!
– Look at the new smallest balance – it’s your new target. Put any extra money toward this balance, including the amount you used to pay off the balance you just cleared.
– Repeat the process as needed.
Over time, the amount you pay towards each balance increases, as you pay the minimum plus the amounts you were paying on other cards. Your payments build up until you are debt-free. The snowball method is considered a rewarding psychological strategy because it provides a huge boost of confidence each time you pay off a debt, creating a series of quick wins. And since you start with your smallest debt, it shouldn’t take long to achieve that first win.
Communicate with Creditors
It may be possible to get a lower interest rate without transferring a balance. If you’re not confident about being approved for a debt consolidation loan at an attractive interest rate, try negotiating with your current card issuer.
Contact your current card issuer and request a reduction in your interest rate. To enhance your chances, highlight the reasons that could benefit the card issuer from working with you: your on-time payment history, your long-term relationship, and your improved credit score. You can also mention any recent hardships, such as job loss or unexpected medical expenses.
Using this strategy, one phone call can save you a significant amount of money. Reducing the interest rate on your credit card means that more of the payments you make each month will go toward decreasing the balance. With a smaller balance (and a lower interest rate accruing on it), repayment becomes easier.
Note: Use the solutions mentioned above to contribute as much as you can on your debt repayment journey. The options below should only be used as a last resort, as they may worsen the situation. However, sometimes it may make sense to take desperate measures.
Consider
In Debt Settlement
If there is no realistic way to pay off your credit cards, you may want to consider debt settlement. You and your lender can agree on an amount (less than what you currently owe) that will satisfy the lender. As part of the agreement, your lender must not try to collect the debt or sue you after you pay the agreed amount.
You can settle your debt with a lump sum payment or a series of payments. Either way, make sure to get everything in writing so the agreement is clear. You can try to settle debts yourself, or you can pay a debt settlement company to guide you through the process and negotiate on your behalf.
Note: Avoid companies that charge upfront fees or make big promises. No one can guarantee creditors will agree to your proposal, and it’s unlikely you will agree to a settlement for a simple enough amount to settle in full dollars.
Debt settlement can provide an affordable solution that helps you get past debt and ensures you won’t be struggling forever. However, debt settlement can negatively affect your credit score. Additionally, if you stop making payments on your credit card balance while exploring debt settlement, the balance may continue to grow.
Source: https://www.thebalancemoney.com/pay-credit-card-debt-357427
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