Are you burdened with credit card debts, car loans, student loans, and other personal loans? If so, there are various methods and techniques that can help improve your finances.
You may do it yourself better by following the debt snowball and avalanche. On the other hand, you may request help from companies with debt consolidation or debt management plans.
Find Your Debt Strategy
If you’ve been trying to take on debt alone, you may have gotten disappointing results. Still, you may perform debt payoff better with the debt snowball and the debt avalanche.
These are two techniques that involve paying debts one-by-one while keeping current with the others. What distinguishes each other is their opposing order of debt payoff.
Following the debt snowball method means paying your smallest debt first while paying the minimum for the other balances. After completing payment, you will then have to accomplish payoff for the next in size. Compared to the avalanche method, it pays back debts slower. However, quick completion of small debts may help you stick with debt payoff.
Read More: What is the Debt Snowball Method?
In contrast, the avalanche method starts with debt with the highest amount, then proceeding with the next in size. Like its counterpart, it offers faster debt payoff but stricter discipline. When you look at the math, paying heftier balances first facilitates debt payoff. However, it requires tremendous discipline, as paying off the largest debts may frustrate you.
If you require further assistance, you may ask for debt consolidation. This is a loan used to pay debts with a lump sum that has only one smaller interest rate. This singular aggregate debt is much simpler to monitor compared to several smaller ones. The smaller interest rate may facilitate debt payoff.
You may also use balance transfer cards for consolidation. These work like typical credit cards, but they have a 0% APR period lasting a year or more. This means that you may focus on paying off your credit card without interest. Make sure to complete payments before the intro period ends though, as you’ll get interest rates typical for credit cards.
However, it’s only allowed for the unsecured types of debt. The repayment plans and other loan terms depend on credit scores. If you have poor credit, your lender might offer you the highest interest rates and other unfavorable loan conditions. In addition, you might not be able to avail of fixed rates unlike people with better credit.
Read More: What Is Good Credit?
Debt Management Plans
You may ask for credit counseling for a long-term solution for your financial situation. These are provided by companies that may teach you better money habits. More importantly, they may negotiate with your lenders to loosen their repayment plans. These measures will be part of their debt management plan that you’ll follow until repaying your debts completely.
Keep in mind that the plan will impose some restrictions. You may be prevented from using credit cards to make sure you stop accumulating more debt. Your credit rating may also take a hit due to credit counseling. Asking for help in repaying your debts may be cited as grounds for reducing your credit score.
Debt Tips To Keep You On Track
There are ways to keep track of your debts. First, you must set a budget for all your expenses.
There are various approaches for budgeting such as the “50/30/20” method. It involves using half of your income for expenses. The 20% will be for your savings, while the remaining 30% is for occasionally buying stuff you like.
To improve your financial situation, you may decrease your bills and/or increase your earnings. You may remove subscriptions or other monthly payments you don’t need. After all, some may have been accumulating high interest without you noticing! If you aren’t using an online streaming service, it may be a good idea to cancel it.
In addition, you may earn more money from a part-time job. Check your neighborhood for side hustles available or you may check online for remote work. Even temporary work will help, especially for paying off your debts faster. They don’t have to take too much time, and you may perform some in the comfort of your own home.
If all else fails, you may apply for debt relief or worse, bankruptcy. There are companies that may help you negotiate a debt settlement with your lenders. This may harm your credit rating in the long-term, but it may help your short-term finances. Nevertheless, there’s bankruptcy for your nuclear option that scars your credit report for ten years.
Read More: Better Money Habits