It is very easy to find yourself being caught up in debt, and the fact is that most people don’t recognize the looming cloud of debt until it’s too late. Once you get yourself into this mess, it can be very challenging to get out of it. The most unfortunate part is that it can take you only a few months to start falling into debt, but it can take years before you can recover. If you are in this position already or are almost there, it is time that you plan on how to get out of those debts. Lance Advisors, a young debt consolidation company, has come out with a list of common methods you can use to reduce debt payments.
1. Do Not Create Any More Debt
While stopping the creation of more debts will not directly reduce your current debt, you will prevent your debt situation from becoming worse. It is very hard to make any progress with debt repayment if you continue generating new debt. In this case, you must hold yourself accountable and start being responsible with your finances. The first thing you need to do is to stop using your credit card. People tend to over-use their credit card as long as it hasn’t reached its limit, and some even exceed the allowed limit and make matters worse by accruing penalties. You have to learn how to be responsible first before you can start using a credit card again.
2. Work Within A Budget
Many people do not know the importance of having a personal budget, and if you are one of these people, it is time for you to start using a budget to manage your expenditures. If you are not sure how to prepare one or stick with it, ask for help from knowledgeable people or companies such as Lance Advisors. If not, use personal financial tools such as excel spreadsheet or mint.com, whereby you identify your monthly incomes and expenses. From these expenses, identify things that you can stay without and therefore cut back on some costs. If you cannot scale back your spending habits, you will continue to drown deeper and deeper into debt. Other habits that you should cut include impulse buying. Look for things that you can sacrifice to spend less and less every week.
3. Pay More Than the Minimum
If you only pay off debts when it’s convenient for you or pay very little, it will take ages before you can completely pay your debts. Your creditor may not be willing to work with you because you are only paying the minimum amount and show no signs of working to better your situation. If this is what you have been doing, it is high time you start paying double or triple amount of the minimum payments if you can afford it. The good thing is that if you can change your spending habits and avoid new debts, it will be easy to increase your monthly payment.
4. Have an Emergency Account
For many people suffering from large amounts of debt, this stems from a lack of emergency funds. As soon as something goes awry, the only recourse is to take out a loan to cover the extra expense. Having an emergency fund may sound contradictory when you are planning to dedicate additional income to paying off debt. However, this type of saving is also important because it will help you handle unplanned for or emergency expenses. It will hold you from taking more loans every time you have an emergency. Even after clearing your debts, maintain this account, and it will always act as your safety net.
5. Pay One Loan at A Time, And in Full
Some people can see results simply by raising their minimum payments, especially if the loans are not too extreme. However, if you have several sources of debt, consider choosing one and then focus on it until it is fully paid. You can focus your payments every month towards that specific account and continue paying the minimum balance for others. Once you are done with it, pick another, and continue this process until they are all paid in full. According to Lance Advisors, when you have several sources of debt, it can be overwhelming to settle them all at the same time, and therefore it is good to prioritize one after the other until they all get settled. Once you settle the first and second loan, you will feel free and motivated to settle the rest.
6. Ask for Better Terms from Your Creditor
Before you take on a new loan and agree to terms, make sure you are comfortable with all of them, specifically the interest rate and payment period. Ask your creditor to lower the interest rates if it is possible, to avoid taking a burden that you cannot handle. You can also ask for an extension of your repayment period and stoppage of interest or penalty charging if you have defaulted for a certain period. If your payment history was okay before you defaulted and have a sensible reason why you defaulted, your creditor might be willing to negotiate the terms for the way forward. You can also request your credit card issuer lower your rates, and if you have been a good borrower with them, they might hear you out and give you better rates. After all, every creditor wants to sustain customers and recover their money, and therefore would be willing to agree with you on how the loans can be settled.
7. Find New Ways to Have More Money for Clearing Your Debts
If you can get more money to settle your debt, it will become easier for you to be debt free within a shorter period of time. Begin by preparing a monthly budget of the amount you want to channel towards debt payment. If the amount is more than you earn currently, look for ways to get more money for settling debts. For instance, you can decide to use any bonus you earn at work to settle your debts rather than going for a vacation or a shopping spree. Lance Advisors suggests that it is better you pay for your holiday vacation later when you know you are free from debts, and it is possible you will enjoy the trip more due to the peace of mind. Also, consider selling household items or anything else in your possession, as long as you do not use them anymore. You can use available online platforms to advertise and sell these items, and this might help you clear your debts faster.
8. Seek Advice from Experts
Being drowned in debt can be overwhelming and sometimes can lead to depression. Do not try to solve these problems on your own, but rather seek professional advice from a financial advisor and also consider going through credit counseling. These professionals can help you prepare a debt management plan, a debt payment plan, assist in personal financial planning and in negotiating for better terms with creditors.
9. Appreciate Your Efforts
You may have made a big mistake by getting yourself into debt, but when you decide on recovering your finances, never count it as a punishment. Motivate yourself every day and enjoying paying your dues every step of the way because once you are done paying you will be proud of yourself. Once you reach your payment goals, reward yourself, because that is a great achievement. However, the resolutions you made, the bad habit you stopped, and every responsible effort you took, should remain in your checklist. It can be very discouraging to find yourself in the same situation again and this the reason why Lance Advisors recommend that you focus more on saving or investing rather than spending. If you can manage your finances better, it will not be difficult anymore to fund an emergency or a getaway vacation.
Loans can be good because they will help you fund things that you couldn’t at the moment but can in the future. However, no one should take a debt simply because they are available. Lance Advisors believes that if you can take a loan only when it’s necessary, use the money wisely, and pay lenders back as fast as you can, you will protect yourself from drowning in bad debts. Another thing you need to know is that if you ruin your credit history, you will have a bad credit score and the consequences can last for years. Staying away from bad debts also translates into peace of mind for you and your family.