Getting out of debt can be hard, especially if you only make minimum payments to your creditors. This could lead to you getting trapped in a financial mess that will take a long time to get out of.
Fortunately, there are plenty of ways that you can get out of debt. One of these is by adjusting your budget and freeing up funds to pay off more than the minimum. Another is by refinancing or consolidating to get payday loan debt relief. Read below to find more tips for getting relief from your debts.
1. Pay More Each Month
Before you start applying one of these strategies, you should have a clear understanding of how much extra money you can allocate toward your debt. This will allow you to pay off more quickly and save money on interest.
A $15,000 credit card balance with a 17% interest rate and a $450 minimum payment would take almost four years to pay off. If you only make the required minimum payment, you’ll end up owing around $5,500 in total interest.
If you made a minimum payment of $550 a month, you could easily pay off the debt in three years and only pay off $4,100 in interest. You can use a credit card payoff tool to get a better idea of how much you can save.
2. Use the Snowball Method
If you’re not making enough to pay off your debts, the debt snowball method might be a good alternative. This strategy involves asking for a lower minimum payment on all of your debts except for one. By making a big payment on the smallest one, you can eliminate it quickly, while paying the minimum on the other ones.
Let’s assume that you have $10,000 in student loans, $5,000 in credit card debt, and an $8,000 auto loan. With the debt snowball strategy, you would first settle the auto loan, as it has the lowest balance.
The goal of the debt snowball method is to help you consolidate all of your debts into one manageable payment. However, this strategy should not be used if you have a title loan or payday loan, as these loans typically have high-interest rates and require immediate payment.
3. Refinance Your Debts
If you have a lot of debt, refinancing could be a good strategy to lower your interest rate and consolidate all of your debts into one manageable payment. It can be done for various types of loans such as auto loans, mortgages, and student loans.
One of the most effective ways to consolidate all of your debts is through a personal loan with a lower interest rate. You can transfer your credit card balances to a balance transfer card, which has a zero percent APR for a specific period.
4. Put Windfalls Towards Debt
If you’re getting a stimulus check or tax refund, you can use the money to consolidate all your debts instead of putting it in your bank account. You can either commit the entire amount to pay off your debts or split it evenly between various expenses, such as a trip or an expensive dinner.
Other unexpected windfalls, such as cash gifts, inheritances, and work bonuses, can also be used to lower your debts. It’s important to remember that every little bit helps. It helps build momentum when one uses financial windfalls to pay off debts.
5. Settle Your Debts for Less
You can choose to negotiate with your creditors to settle your debts for a lower amount than you owe. Although it’s possible to do this on your own, third-party companies can help you achieve better results.
While it may seem like a good idea to lower your debts by paying less, there are some risks that you should be aware of. One of these is the possibility that debt settlement companies may ask you to stop paying off your debts while they’re negotiating for you.
This strategy works because you’ll only be paying a portion of what’s owed. You’ll be able to move on with your life knowing that you no longer owe the creditors. Before you start negotiating with your creditors, make sure that you get the terms of the settlement in writing.
Final Thoughts
Breaking free from debt can be difficult, but following these strategies can help you make progress and improve your financial health. Understanding why you entered this cycle and modifying your behavior can help prevent it from happening again once your debts are paid in full.
