If you have more than $10,000 debts and bill collectors are constantly calling asking for payments, you’ll want to get guides on how to pay off debt that work for your specific situation.
Fortunately, here you’ll learn ways to get out of your debt starting from creating a budget to following a repayment plan, including what to do if your debts are starting to go out of control. No matter how bad your finances are now there are options for you to choose from.
Although self-help is the best there are situations where you need outside help. For that purpose, you’ll also get tips on how to find the right service and pick a reputable specialist from our reporter-style reviews.
Because you can get all the help here, all you need to do now is to begin learning how to pay off debt. Let’s start with a budget…
It All Starts with a Simple Budget
Before you do anything else write down all your debts, your creditors and the interest charges. List also your monthly expenses for housing, food, transportation, utilities and other needs. Put them all on a spreadsheet so you know where your money goes each month.
Now let’s have a look on your income sources. Do you have a stable income? Can you set aside some money to pay off debt? Those are questions about your ability to generate income and whether the income can cover your monthly expenses.
Once you find all sources of money add them to the spreadsheet. That is your income and expense budget. At this stage you can leave your budget as is or find expenses that you can cut back on to save money for debt relief.
Debt Snowball and Debt Avalanche Methods
Different financial experts may have different advice on how to pay off debt. But the two common methods for paying off credit card debt and unsecured debts are debt snowball and debt avalanche.
The debt snowball strategy focuses on the smallest debt first. This method involves paying as much as you can on the smallest balance and the minimum amounts on the rest. When you’ve paid off the smallest debt, add the amount you were paying to that debt to the next smallest one. The process goes on until all your debts are clear.
The debt avalanche method begins with the most expensive debt first. You want to put as much money as you can for paying off the highest interest balance and the minimum amounts on the other debts. When you have paid off the first debt just add the amount you were paying to that one to the next most expensive debt and so on.
Which debt reduction method will work for you? Debt snowball strategy is good for you if small successes keep you motivated along the way to reach your debt-free goal. However, if you’re struggling to make the minimum payments then the debt avalanche method is better than the debt snowball strategy.
How to Pay off Debt with Little Money or Low Income
Both debt snowball and debt avalanche methods work when there is money left after necessary monthly expenses. But if you cannot set aside money or the amount is just not enough to cover the minimum payments you have to use the debt avalanche method.
The first thing to do in such a situation is to get extra money. Working overtime on your current job and getting a part-time job are some of the ways to earn extra incomes. Utilizing assets by renting your spare room or offering a lift to a neighbor for a fee is another good idea to generate extra cash.
You can also take a look at your monthly expenses, especially food, entertainment and travel expenses. Simply find ways to make some sacrifices out of your current lifestyle and save cash out of them.
What are your ideas for generating extra cash?
How to Pay off Debt On Credit Cards
Are credit cards the biggest problem? If so, check the total monthly minimum payments of all your credit cards and follow the steps:
1. Choose your debt repayment method. If you can set aside some money for debt repayments do so using the debt snowball or the debt avalanche method. However, contact your creditors immediately if you cannot make the minimum payments. Try to negotiate with your credit card companies to make sure you pay the minimum amounts.
2. Check your credit reports and scores. Depending on the total amount of your credit card debt, with good credit scores chances are you can transfer your credit card balances to a new 0% APR or low-interest credit card. But that option will not apply to you when you have made late and missed payments.
3. Get a consolidation loan. Obtaining a consolidation loan is good for you to get your debt under control and make repayment less stressful. However, make sure the benefits outweigh the total cost otherwise the new account will only create a new debt that negatively affects your credit.
4. Increase your payment amounts. To speed up your debt repayments you want to seek other sources of money like selling assets. Alternatively, try to borrow money from friends or family who love and trust you.
How to Pay off Debt on Student Loans and Payday Loans
If you borrow student loans you will need to create a debt repayment plan even before you finish your study. These student debt relief tips show you how to avoid problems like getting behind and defaulting on the repayments because the job that you have aren’t enough to cover all payments. You may also want to check some private and government consolidation loans to lower your student debt repayments.
Payday loans can offer you fast cash in a financial emergency. But the loan is expensive and even dangerous because if you’re unable to pay the cash loan back on time it can lead to many fees and a lot of interest charges. If you’ve fallen into the payday loan trap, however, there is a way out. Simply consolidate loans to make your payment more affordable and you can get back on track financially.
How to Pay off Debt Collectors
A debt collector will contact you once you’ve fallen behind on your payments. The collector may come from an in-house collection function of your creditor or from a third-party agency. He or she will use many steps to collect payments, which may include legal actions such as wage garnishment, repossession and foreclosure.
If you have to deal with a debt collector learn how to stop them from harassing you and discover ways to negotiate an affordable debt settlement that will keep both parties happy.
How to Pay off Debt with Bad Credit
If you have bad credit it’s harder for you to qualify for an unsecured loan from banks or credit unions. Fortunately, there are lending services that specialize in debt consolidation. These lenders offer a loan to people with bad to average credit, who are struggling to pay off debts. The consolidation loan rates and terms may vary depending on your credit score.
Can’t get an unsecured loan or the amount is too small? Try to find out whether you qualify for a secured loan. If you’re a homeowner with a significant equity you might qualify for an equity loan. However, be very careful when converting unsecured loans to a secured loan because you could lose your home.
How to Hire a Pro for Debt Relief
There are many ways a professional can help pay off debt. Here are brief descriptions of their services:
Debt consolidation works through combining multiple unsecured loans into a consolidation loan with a lower monthly payment. Your consolidator “purchases” debts from your creditors and you make a monthly payment to the lender.
Debt management programs are good for lowering interest rates and negotiating new repayment plans with creditors. In this plan you will need to deposit money with the agency and in turn they will send the funds to your creditors.
Debt settlement programs are for you find it difficult to pay off even the minimum payments. It works through debt negotiation between the provider with your creditors. You will need to accumulate money with the company and they pay lump sums to your creditors.
Bankruptcy is the option for you if you cannot pay off your debt. For this purpose, a bankruptcy attorney can help you to file for bankruptcy Chapter 7 or Chapter 13 to satisfy your creditors.
Pay off Debt and Rebuild Your Credit
Enrolling in a debt relief program may impact your credit score and your chance to get good credit in the future. For that reason, more and more businesses offer services to fix credit and other credit help. In addition to learning how to pay off debt you may want to know how to rebuild your credit.
You may want to learn about how credit system works. This involves understanding your credit report and score and improving credit before you get a loan. Also, ways to deal with credit reporting agencies that handle your credit files.
How to pay off debt and rebuild credit using professionals? Just read reviews of the recommended programs and companies to work with.
How to Pay off Debt and Save Money
Once you are comfortable with your monthly debt repayments it’s time to check again your budget. Review your expense list and find out what you can further sacrifice. With your current level of income, try to set aside money each month.
If you can save some money the first thing to do is create a savings account for building an emergency fund. Ideally the emergency savings can cover 6 to 8 months of your monthly living expenses.
You can speed up your debt repayments and save more money by increasing income and getting extra cash. Whether you can save or not make sure to find other sources of funds. Finally…
Do you agree that being financially independent is much more rewarding than being debt-free?
If so, I would suggest you look at all your debt repayment efforts as part of processes for reaching your financial freedom goal.