When confronted with debt, sometimes â€œjust paying it offâ€ isnâ€™t as easy as it sounds. Unfortunately, your debt wonâ€™t disappear overnight, nor will it help you to ignore your obligations. However, with perseverance and determination, you will pay off your debt. To get started, here are a few tips.
#1: Learn to Snowball
One of the best debt elimination techniques is the snowball method. Basically, start by examining the balances and interest rates on your credit cards. Find the card with the highest rate and focus/divert your resources to paying down that card while making the minimum payments on the others. Once this card is finished, move on to the one with the second-highest rate and so on. Youâ€™ll find that as your debts decrease, the amount of money you have to tackle remaining debt increases.
Another way to snowball your debt is to transfer your balances to a low-interest card. In some cases, look for banks offering promotional transfer rates that can substantially reduce your monthly payments for a brief time and allow you to hit the principal hard. Watch out though, at the end of the promotion the new rate may be applied retroactively to all outstanding balances!
#2: Bite the Bullet
Want a chance? Try paying more than the minimum payment. While there are a few neat tricks to driving down your debt, the most effective solution is to step up and start putting more money towards your bills. Be prepared to give up a few luxuries in the process. While it may be painful in the short term, the money you save in interest will more than compensate.
#3: Cash out Accounts
This may seem risky, crazy even, but if you are faced with high enough interest rates, cashing out your investments is a safe bet. While you do have to take into account state and federal taxes, paying off your debt is the same as getting a sizable return in light of the money youâ€™ll save.
#4: Negotiating â€“ Itâ€™s Time to Talk
Are you between a rock and a hard place? Every creditor will talk when you bring up one magical word â€“ bankruptcy. Not actual bankruptcy, but the threat thereof. In any case, a creditor will try to avoid a total loss and most likely will be willing to establish a lower repayment schedule, lower interest rate, or even lower payment.
Your credit report is the basis for your financial standing. No matter how slick or smart you may be, no bank will touch anyone with a low credit score. It's their money, why would they want to take a bigger risk than they need to?
If you don't know where your credit report score is at, now's the time to take a peek. Don't get surprised with a low credit score when you go in to review your report with a potential lender or even an employer, find out for yourself within minutes.