Thinking about debt can be overwhelming, leading to stress and anxiety. Debt also limits your financial freedom, making saving money and planning for the future challenging. While debt can feel like suffocating weight, there are various legal strategies you can use to escape debt and regain control of your finances.
Here are 12 ways to break free from debt without breaking the law.
Create a Budget That Prioritizes Debt Payment
A budget allows you to understand your finances and determine your current expenses. Your current spending can help you decide how much you need to put towards your debt. If there are expenses, you can eliminate them from your budget, cut back on them, and use the extra money to repay debt.
Paying more than the minimum monthly makes it easier to get out of debt quickly and saves you money on interest.
Consider Debt Consolidation
Opting for debt consolidation means combining several debts into one repayment plan. That allows you to make a monthly payment rather than multiple payments. A debt consolidation loan enables you to repay your debt at a lower interest rate. Find a lender willing to give you better rates and terms to reduce your monthly minimum payments.
Use the Snowball or Avalanche Method to Pay Off Your Debt
Developing a debt repayment strategy is a quick way to escape debt. With the snowball method, you start paying off the lowest balances first while making minimum payments on other debts. After repaying the low-balance debt, you move to the next lowest debt until you’re done.
Alternatively, you can use the avalanche method, which involves paying off the highest interest rate debt first and working downwards. The technique allows you to pay lower interest charges over time, although you’re still repaying other debts.
Negotiate With Your Lender on Settling the Debt
It’s time to consider negotiating with your lenders if you’re struggling with a high-interest debt. Paying off your debt may be overwhelming if more payments go towards interest charges, not the principal amount.
A positive payment history and good credit score can allow you to request lower interest charges. That reduces your interest rate and makes it easier to pay off your debt quickly.
Commit Any Large Sum You Receive to Debt
Did you receive a bonus at work, or did you just get a tax refund? Don’t be quick to spend this money on non-necessities. Use any extra amount to pay off your debt. If you feel too stretched out, you can split the amount and use it to cater to other expenses on your budget.
Cut Down on Your Spending and Put the Extra Money Towards Getting Out of Debt
Living a frugal lifestyle by cutting unnecessary expenses can help you get out of debt quickly. Doing so frees up more money that could go into debt repayment.
Consider Balance Transfers
Balance transfers allow you to move debt to another account, especially if the new account has a lower interest rate. However, this method requires good credit to get approved for the latest balance transfer card.
Find Ways to Make Extra Cash to Pay Off Your Debt
Surviving on a low income can make paying off debt challenging. Finding a way to make extra cash can make debt repayment more manageable. Consider getting a side gig like a remote job, renting out your car, or renting out space in your home. You can also sell unused items in your home to increase your income. Don’t be afraid to ask for a raise at work if you understand the value and accomplishments you bring to your role.
Think About a Debt Management Plan
With a debt management plan, a credit counseling company negotiates with your lenders to determine if they’ll accept reduced monthly payments or interest rates. Once your lender agrees, you pay the credit counseling company monthly, and they disburse the funds as per their agreement. The plan works for those stuck in debt and cannot clear it quickly.
Break Your Debt-Enabling Habits
It’s tempting to get into debt when you easily have access to our credit card or payday loans. While at first, it feels like you’re enjoying free money, over time, the bills accumulate and leave you with debt.
Fortunately, it’s never too late to change debt-enabling habits. Focus on creating a budget, reduce unnecessary spending, and speak to a financial advisor about the best ways to manage your finances.
Consult a Credit Counsellor to Understand Your Options for Getting Out of Debt
Sometimes, you may have the means to pay off your debt, but you need guidance on how to repay it and stay out of debt quickly. A credit counselor can help you understand the available debt repayment options and create a plan to manage your case.
However, it’s worth noting that some companies will offer free first sessions. Over time, you may have to pay a fee. Ensure you ask about this before committing to credit counseling.
Consider Filling for Bankruptcy as the Last Resort
While some people opt for bankruptcy as a way to escape debt, it can also impact your credit history negatively as it remains on your credit report for up to ten years. You’ll also need to work with a bankruptcy lawyer to file the required documents with the court. There are two options for filing bankruptcy. You can either file for Chapter 7 or Chapter 13 bankruptcy.
Chapter 7 examines any assets not protected under bankruptcy and liquidates them. These funds go towards repaying outstanding debt. With Chapter 13, you get into a repayment plan, where you agree on a period to clear the debt. Medical bills, credit cards, and personal loans may be discharged or reduced under Chapter 13, but you’ll still have to pay the other debts.
Paying Off Debt
Paying off debt doesn’t have to be stressful. By understanding how the debt happened and thinking of debt payoff strategies, you can quickly clear your debt and improve your credit score. Consult a financial expert if you’re stuck in debt and have no idea how to plan your repayments effectively to get out of debt.
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