Debt and various options to get out of it

Today’s post is contributed by Amy Nickson, a passionate writer on finance. Amy is a professional blogger who has started her own blog. She often writes about debt and today is no different. Please share your opinions by commenting below. We have no financial relationship. 

A large number of people in America are not able to manage their finances and thus they are rapidly falling into debt. The Federal Reserve statistics indicate that the total amount of credit card debt in the United States stands at nearly $927 billion. According to the Census Bureau, people in America are in huge mortgage debt as well. So if you are one of this staggering numbers of individual drowning under the sea of outstanding debt, then it is advisable to follow a few debt repayment methods.

Getting out of debt is important. It is because the debt burden not let you live a peaceful financial life. Also, you will not be able to focus on other financial goals.

Remember, when it comes to reducing debt, no single method is better than another. Each method is suitable to your unique financial situation and habit.

So let us take a close look at the debt repayment methods.

Various repayment options to become debt free

There are various debt relief options that you can consider. But before choosing one, you have analysis your debt first. Choose the debt repayment option as per the type and amount of the debt you owe.

For clearing unsecured debts like credit card debt, due medical bills, utility bills, and personal loans, you can consider many debt repayment options like debt settlement, debt consolidation, and some other personal repayment plans.

Some options are great to manage the secured debts like mortgage and car loan as well.

You can consider professional relief options to pay off your unsecured debts

  • Debt consolidation program

When you can’t manage your multiple debts on your own, you can consider debt consolidation. It helps you to repay multiple debts. Once you enroll in a debt consolidation program, the debt consultant negotiates with your creditors to reduce the interest rate on your outstanding debts. You just need to make a single monthly payment in a debt consolidation program to reduce your debts.

  • Debt settlement program

If you are unable to repay your debts in full, then you can enroll in a debt settlement program. In a settlement, you can get out of debt by paying a fraction of your debts. In this program, the debt settlement company negotiates with your creditors to reduce the outstanding balance debts/bills. After this, the settlement company also fixes upon a suitable payment for you that you will have to pay to the company to settle your outstanding debts at the earliest.

Remember, the creditors will not accept the reduced outstanding balance on your debts easily. But, if you can make them understand that you will not be able to repay your debts in full. They may agree to a settlement. The settlement company collects the money from you and once the outstanding balance gets accumulated, the company helps you pay the money to your creditors.

Note: If you don’t want to enroll in a debt relief company to consolidate to settle your debts, you can talk to your creditors to negotiate for the settlement or consolidation on your own. Remember, the creditors may not agree to your proposal. So, it is better to seek professional help.

  • Credit counseling

If you are struggling to pay off debts but not being able to, then seek advice from a credit counselor.

The credit counselors help people develop a monthly budget and provide them with debt repayment options. They offer a free educational workshop to educate people on how to manage finances to improve their financial future.

However, according to the FTC recommendation, you must meet the counselor face-to-face before hiring the service to ensure that the agency is not a fraud. This is applicable to a debt relief company as well. Choose the right company by reviewing the company’s past record and BBB accredited.

You can consider a DIY repayment option to pay off debts

If the debt amount is not so big, then you can consider some Do-it-yourself debt relief option to become debt free on your own. Some debt repayment options are great to pay off debts that you can manage on your own.

Here you go:

  • Follow snowball method

Debt snowball method works great to repay multiple credit card debts. In the debt snowball method, you need to list down all your debts and rank them in ascending order (from smallest to largest). You need to target and pay off the smallest debt first. So you need to make larger payments towards the smallest debt. However, while paying off the smallest debt, you may pay some minimum amount to other debts. Once your smallest debt is paid off, proceed on to the next slightly larger debt in the list. The whole idea of this method is to inspire you to keep contributing towards debt because each small victory snowball will lead you to conquer the larger debt.

  • Follow avalanche method

Debt avalanche method works great when you have multiple debts with varying interest rates. This helps them save money over time. Though it does not provide the feeling of instant satisfaction like debt snowball, it is a smart way of reducing the debt. In this method, you need to target the debt with higher interest rates while paying the minimum on the balances with lower interests. However, once you pay off the highest interest, move on to the next highest interest debt. Follow the same method until all debts are paid off.

  • Take a consolidation loan

You can pay off your multiple debts by taking out a consolidation loan. Thus, you just need to manage one single debt. However, try to take out the loan with a lower interest rate so that you can manage it with ease. Make regular monthly payments on the new debt.

  • Take advantage of balance transfer method

You can take advantage of promotional offers on credit cards like zero percent or low-interest rate and transfer the balance on existing cards. This will help you make lower monthly payments and save some money.

How can you get out of your student loan debt?

Don’t ignore your student loan debt. Once you complete your studies, get a job as soon as possible so that you can repay the student loan debt fast.

If you have a federal student loan debt, then you need to choose the right repayment options that are available. Make sure the option suits your income.

If the student loan is private, then you can take out a consolidation loan to pay it off. You can also refinance your private student loan. In some cases, you can file bankruptcy to get rid of the student loan debt, but you have to qualify the Brunner test for that.

How can you deal with the secured debts like mortgage and car loan

Since these debts have collateral attached, you can’t consider consolidation or settlement.

If you miss the monthly payments, then the lender can snatch away the property from you.

Thus, it is advisable to talk to the lender if you feel you are going to miss the monthly payments on your car or home loan.

If you think, you can’t manage the mortgage or car loan anymore, then you can consider loan modification or loan refinance.

How can you remain debt free and focus on next?

After paying off all your existing debts especially unsecured debts. You need to focus on other financial goals like planning for retirement, making investments, starting a family etc.

Only getting out of debts is not enough, you have to save enough money so that you can avoid future debts. It also helps to live a financial peaceful life.

To do so, you need to follow these tips

  • Follow a personal budget to pay all your monthly bills on time.
  • Cut down the extra cost to save as much as possible.
  • Consider a second job and earn some extra cash to pay off the debt as soon as possible.
  • keep a track on your income and expenses, and control the habit of unnecessary spending.
  • Save at least 20% of your income in a savings account every month.
  • Build up an emergency fund to avoid surprise debts. Save 3-6 months of savings in the account.
  • Start contributing money on a retirement account.
  • Pay the credit card bills in full and within time.

When you are trapped in debt problems, you need to pick the right option to come out of it. So, don’t hesitate to talk to your lender or creditors. If you were regular on your debt or loan payments, you may get flexible repayment option by them.

Keep in mind, if you have a good credit score, you may easily get a consolidation loan with better terms.

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DadsDollarsDebts

I am a Dad and Doctor trying to make sure I am living life in the best way possible. Whether it is having my finances together, being a great parent, or balancing my home life with work, I am here to kick a$$ and help you do the same.

8 thoughts on “Debt and various options to get out of it

  • October 5, 2018 at 10:50 am
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    We didn’t have much of a method other than PAY IT ALL DOWN ASAP. I suppose we focused on credit cards over student loans, given the interest rate issue. But beyond that it was more of a blind panic. Still, it worked out in the end, I guess.

    Reply
  • October 1, 2018 at 9:54 am
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    Life is really easy and peaceful without debt. Thanks for this helpful article.

    Reply
  • October 1, 2018 at 7:25 am
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    What a great comprehensive look at a ton of the debt-killing options out there! My wife and used the debt-snowball a la Dave Ramsey and paid off our student loans in 3 years. Once that was over, we were able to grow our family and focus more on our passions. Great piece – I hope it helps a lot of your readers!

    Reply
    • October 1, 2018 at 7:42 am
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      Nicely done. After the debt is gone there really is a peace of mind that settles in.

      Reply
  • September 26, 2018 at 7:09 pm
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    Hey WSP

    I wanted to let you know I put this feed on my daily curator I call The Hospital on my blog. All told I currently have 66 physician financial blogs that are in it with the latest post from each blog.

    Check of out if you havent already

    https://xrayvsn.com/the-hospital/

    Hope you can spread it around your social network so it can gain popularity but for me it is an amazingly easy way to keep up with the latest post from pretty much every physician blogger I know.

    Reply
  • September 26, 2018 at 1:49 pm
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    Great summary of all the debt payment options. I employed the debt avalanche method myself because I didn’t need the more frequent positive feedback that is the basis of the snowball method and I am too mathematical/logical to pick something that financially costs me more given the same amount of time/money.

    It is a hassle and sometimes a pain to try and get rid of all your debt, but the feeling of being debt-free is indescribable. That is why I never regretted paying off my mortgage/student loan with extra cash instead of investing even though I might be sitting on a bigger pile of cash right now if I did it the other way.

    Reply
    • September 26, 2018 at 2:01 pm
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      I agree. I paid off a 3.2 percent student loan and it feels great. I never want to be in debt
      again which makes me hesitant to invest in real estate

      Reply

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