Personal loan and debt consolidation companies like Alamo Associates and Colony Associates are flooding consumers with direct mail, internet and radio ads offering an easy way to get out of debt. It’s a great idea to try and get out of debt but its anything but easy.
Below are 6 Tips that will make your journey safer as you repay your debt:
1. Prevent Further Build Up of Debt
No matter how critical your debt burden is, you need to realize that you can’t get rid of it instantly. Before you can even begin to repay your debt, you need to prevent it from piling up. One of the most effective strategies to achieve this is to become a cash-only customer. To be more practical, you can have separate envelopes for expenditures with a specific amount of cash to be spent on each.
If, for example, you kept $150 in the ‘groceries’ envelope, and ended up spending the entire amount in 5 days, you’ll put a ceiling on any further spending on it for the remaining two days and cope with what you already have.
Moreover, you can negotiate a payoff plan with your creditors or consider obtaining a debt consolidation loan. If, however, you have a stable credit history and perhaps a good credit score, a more feasible way to reduce the debt build-up is to apply for a top balance transfer credit card to reduce the interest payments on existing debts. This should help you give a great start to repay your debt.
2. Keep Yourself Motivated
Eliminating your debt burden can be a difficult process. One can easily give up, especially when it comes to curbing your spending. Therefore, keeping yourself motivated is the key. Spend a few minutes every day thinking about how you’d feel when you’re totally free from debts, what financial goals you will be looking forward to, and how would you prefer to live your debt-free life.
Even if you’re expecting a call from a creditor, this daydreaming technique will work incredibly. You’ll know exactly what you aim to achieve by sacrificing on those little things from time to time. This way, you can repay your debt relatively faster.
3. Scrutinize Your Budget
You might be fed up with this suggestion, but you need to understand that the single most results-oriented technique to repay your debt is to control your spending. Even if you choose to rely on other methods, it all comes back to how much you’re spending. Thus, no matter how annoying it seems, scrutinize your monthly budget, tracking the flow of every dollar so that you know how much is available for debt repayment.
You must have heard about the 50-30-20 budgeting technique. To give you a quick review, this method entails allocating 50% of your budget to fixed, essential payments, such as rent, car installments, or mortgage; 30% to entertainment and hobbies, such as dining out, leisure, movies, etc; and 20% to fulfilling financial goals like retirement saving or repaying your debt. You know which area to target for curbing spending: the 30% zone.
Initially, you should focus on trimming your budget to at least pay the minimums on your credit card bills. Once you’ve achieved that, consider it only the beginning as that’s when your repayment journey will commence. Every dollar you save from this point onwards should be utilized to repay your debt.
4. Plan Smart on Repayments
When you’re in a position to seriously pay off your debts, you should not proceed unplanned. You can repay your debt quickly by a little bit of smart planning. The best approach to debt repayment is the ladder method. This involves targeting the account balance with the highest interest payments. Once you’ve repaid this account balance, move one step down the ladder to target the next expensive credit card account.
However, you should never put off paying at least the minimum balances on other accounts. While you repay the high-interest balances, keep making minimum payments on all other accounts. Keep following the process until you get rid of your entire debt burden.
To may also rely on this debt payoff calculator to accelerate the debt repayment process.
5. Consider the Snowball Strategy
For people who like to see instant results, the ladder approach may not be a good approach to repay your debt. For them, the debt snowball strategy proves more reasonable. This approach relies on the amount of balance on each account rather than their respective interest payments. You compare the account balances start off with repaying the lowest account balance while paying the minimum payments on other high balances. Once you’ve repaid the lowest balance, you get to the repayment of the next lowest balance.
Since you’re likely to repay the low account balances sooner than the high account balances, quick elimination of accounts is kind of motivating for you to keep going. This is an ideal approach for hasty people who can easily give up on heavy repayments.
6. Seek the Creditors’ Help
You might be surprised to know that your creditors are typically willing to help unless it’s too late. If you discuss your situation with your creditors such as about a medical emergency or your lost job, you might be able to secure a temporary waive off on interest payment. You can initiate the conversation by stating that you aim to repay your debt at your earliest but would like to know what services are available to help you out. If they sound helpful, you can go ahead disclosing your scenario and requesting possible exemptions. This option actually exists, but very few people even think about it.
However, this doesn’t mean that you turn to the creditor for help at the very last moment when your account is due to be closed following too many missed or late payments. They are not likely to come up with a viable solution in that case.
Closing Thoughts
While following the tips discussed above should help you devise an effective debt elimination plan, you may choose to seek help from a non-profit credit counseling agency, which will review your situation and suggest the best repayment options to ensure the quickest possible settlements. We truly hope that you’re able to repay your debt very soon.