How do borrowers pay off debt without resorting to extreme, potentially detrimental solutions like bankruptcy? Fortunately, there are multiple tactics for getting indebtedness under control and rearranging your personal financial situation. The first step is to do an honest assessment of what you owe, the balances and interest rates on each account, and how long it might take to pay everything off.
Hiding from creditors, not answering legitimate messages, and ignoring the problem will do no good. In fact, avoidance tactics only make things much worse. Getting from in debt to paid off is a realistic goal, but it’s imperative to employ the proper techniques for getting the job done right, legally, and reasonably. What are the other pieces of the puzzle?
They include commonsense approaches like making a payoff plan, taking care of the smallest balances first, negotiating with lenders whenever possible, not putting money into savings accounts until all debt is paid, and changing attitudes about spending. That’s a lot to take in, but the process can work for anyone who applies the principles diligently and with patience. Here’s how to get started.
Know Where You Stand
Truthfulness will serve you well at this stage of the game. Do you need to start cutting up your credit cards or simply change a few bad habits? Do a thorough, honest assessment of all your financial obligations, assets, and goals. It’s critical to review assets to see what’s available for paying down indebtedness. Likewise, make a detailed list of every penny you owe, to whom it’s owed, the accompanying interest rates, due dates, any special terms, and average monthly payments. Knowledge is power, and knowing your financial situation is the perfect starting point for getting things in order.
Make a Payoff Plan
It’s essential to have a debt payoff plan that includes a realistic timeline and an element of consolidation if you have multiple credit cards and other balances. Fortunately, those who need a way to get several debts under control can take out a sensible personal loan as a simple means of consolidation. Personal loans are a worthwhile solution for getting finances under control. Plus, there are online blogs that discuss payoff plans and related subjects. That way, you can educate yourself about the most beneficial course of action. The beauty of payoff plans is that they serve as goal posts to motivate borrowers who otherwise might lose their way.
Focus on Small Balances First
Even if those smaller balances come with lower interest rates, aim to eliminate them first. There’s a huge psychological advantage in lopping off one or two accounts relatively quickly. Then, you can focus on the rest of the landscape, including larger balances and high-interest obligations. It’s best to leave the small accounts open until all cards are paid off with proceeds from a personal loan. However, the first move is to pay cards in full to stop interest from accruing.
Ignore Emergency Funds & Savings Accounts For Now
While emergency funds and savings accounts are core components in a total financial plan, set them aside until credit cards are paid off. The reason for this strategy is interest. There’s no logic behind saving money while paying accrued interest on card accounts. As tempting as it can be to save a fixed amount of income or build an emergency fund for a rainy day, the priority is to attend to the other side of the ledger, indebtedness.
Negotiate When Possible
There are dozens of ways to negotiate with creditors. One is to ask for a reduced amount in exchange for settling an entire balance at once. Another is to request a lower interest rate, a break in payments, or more time to pay. Many are surprised at what they can get a lender to agree to, even when balances are quite high. This is particularly true with older accounts that have larger than average balances.
Put yourself in the lender’s shoes. When they think someone is having trouble and might resort to bankruptcy, they’re more willing to negotiate and recoup as much, but perhaps not all, of the amount as possible. There’s no need to fear requesting help. The worst thing that can happen is the lender refuses to budge. Remember to be reasonable when making these types of requests to get the most positive results.
Change Attitudes About Spending
Learn to change your spending habits and make an attitudinal change in one essential area. Begin to assess purchases in a new way, assuming that you can’t afford something unless you have the cash on hand to pay for it immediately. Save for things like vacations, furniture, nights out, gifts, new clothing, etc. Start thinking of money as a hard, tangible asset instead of a piece of plastic.