When struggling with Debt it can sometimes make people feel that it is completely inescapable and it’s not uncommon to find yourself feeling that there’s no light at the end of the tunnel.
This is because debt is by nature self-sustaining. Not only do we owe more money than what we possess in reality, but the more we owe, the more debt will increase.
The interest on your debt grows and compounds, which means you’ll be charged interest on your interest and that your growing debt can grow exponentially as time goes on.
It doesn’t have to stay this way forever though. Fortunately, there are plenty of methods you can use to get yourself out of debt. It just takes a bit of determination and know-how.
Today we will look at some of the options you can use to get out of debt that work.
1. Stop Borrowing & Increase Your Credit Payments
As mentioned earlier, when your existing debt grows in interest and it can accumulate even more debt for you, which can be an incredible amount for some people.
So, first thing you NEED to do is stop borrowing or using your credit card except for subscriptions and services, which are paid automatically each month.
If you don’t have money to pay for something, don’t contribute to your existing debt. Resist the urge to splurge!
Trim down what you’re spending and pay off your debt as much as humanly possible. Doing this can effectively reduce your debt because your interest won’t let up, so you can’t either.
In addition, if you have multiple loans or credit cards or other kind of debt you will need to have a strategy in paying off the one that costs you more money. It could be a credit card that has a high interest rate but there could be one you’re paying more interest on a monthly basis just because the balance is so high.
In other words, pay off the debt keeping you in debt the most, which may not always be the one with the highest interest rate. You can also consolidate your debt and loans, which we’ll cover later in this post.
2. Budget Your Money Wisely
When you’re struggling with debt, it’s of course very important to create a budget and a plan for getting out of that debt and then to sticking to it.
This is often easier said than done and it doesn’t yield immediate results but it can be effective in the long-term and if your budget is comprehensive and you are strict with yourself, it can give you projections for where you will be financially in five months or five years.
Do bear in mind though that there will almost always be unexpected expenses. The only truly successful budgets will be hugely conservative if you have been struggling with debt over the past years.
3. Debt Consolidation Loans & Debt Management Programs
Debt consolidation basically means taking out a new loan in order to pay off all of your existing loans. This can sometimes get you into more trouble but in other cases it can be a big help. The basic idea here is that by taking out one loan to pay off your others, you consolidate all those expenses into a single payment.
This then means that you don’t have to worry about different amounts of money coming out of your account throughout the month and it makes budgeting that much easier as a result.
At the same time, the aim with consolidating debt is that the interest on that one new loan is going to be less than the sum total of interest you’re paying on all the other loans.
This can also be good for your credit score because it will look as though you successfully paid off lots of smaller loans.
A Debt management program is probably the more effective and efficient way to consolidate your debt and pay off debt to them which they will carry for you.
The advantage is that they will charge you one payment per month and charge you a lot less interest then you’re most likely paying to credit card companies.
They lighten the load for you, while giving you a better opportunity to get out of debt faster and by paying affordable monthly payments.
4. Debt Restructuring for Getting Out of Debt
Debt restructuring basically means changing the way in which you are paying back your loans. For instance, this might mean asking a lender if you can pay smaller installments for longer, or if you can freeze your interest for a little while. In other words, if the financial pressure is too great, then you simply ask your lender if you can have something of a ‘break’ for a while.
Why would banks be willing to let you restructure what you owe them? Because they’d rather you paid the loan in its entirety than go bankrupt.
In other words, it’s in their best interests too to help you out. Speak to your lenders then, or consider asking an advisor to do so on your behalf.
5. Transferring High Interest Loans & Credit Card Debt
Transferring any high interest debts like credit cards to a low interest line of credit from your bank can be a way to quickly reduce your interest on your debt. As a result, you can pay your debt off faster by putting more money towards paying off the principle.
6. Refinance Mortgage
You may have to pay a penalty for when you refinance your mortgage but much of the time it can be worth it to get a lower rate of interest on your mortgage. Once you have a lower rate of interest you will be able to pay off the principal quicker. So over time, you’ll pay much less interest on your debt.
7. File Bankruptcy After You’ve Exhausted Your Other Options
These days, bankruptcy is increasingly becoming a legitimate option for getting out of debt. It’s devastating for your credit score, so you should certainly consider it a last option but it forces your lenders to restructure your debt and it means you get help with your loans from the state.
Bankruptcy is a better choice for businesses than it is for individuals but more and more people are choosing to go this route.
Consider this a ‘last resort’ then – but it can be reassuring still to know that there is a way out of when all other options are exhausted.