Is Your Debt Getting the Best of You? How to Decide Which Financial Option Suits You

Sometimes the mortgages and credit card debts can seem insurmountable. No matter how many months you pay, you never seem to manage the large amounts of debt that have accumulated over time.

Debt can be particularly overwhelming if you don’t have a plan for paying it off. It can be discouraging when you owe so much that you cannot even determine when you will get it all paid off. 

And no matter how much money you earn, you may feel like sometimes all you are able to do is pay your monthly bills.

The good news is that there are plenty of options for getting out of debt, and they are solutions that anyone can make use of. If you follow a few simple financial tips, you can pay off your debt and be debt-free in a year or two depending on the amount you owe.

Organize Your Bills

Before you can pay off what you owe, you have to determine your total debt. Analyze your bank statements and your credit card statements from the past 12 months. 

Take note of all the recurring loan bills and other fixed expenses you have. Be sure to include interest rates, total balances, and any additional small payment required on top of the total debt.

Next, you want to check your credit report to see your current loans, lines of credit, and any loans you might have in default. You can check your credit report annually online for free. Be sure to analyze your credit from all three credit bureaus, as some lenders don't report to all three of them.

Once you know what your total is, you're ready to start paying your bills and be on the road to living a debt-free life. All you need to do is follow these simple strategies.

Pay More Than Your Minimum Payment

Analyze your income. See what you can do to earn additional income to pay off your debt, then budget your expenses. Finally, decide on how much extra money you can put towards your debt. Paying more than the minimum amount on credit card debt will save you money.

For example, if you have a $10,000 balance on your credit cards, there's a 17% APR and let's say you have a minimum payment of $350. 

If you only make that minimum payment, it will take you four years to pay off the balance, and you'll end up spending about $4,000 on the interest rate. On the other hand, if you paid $600 a month, you could repay that debt in less than two years and lower your interest rate.

Prioritize Your Smaller Debts

Another option is to make the minimum payment on all your credit cards, except for the smallest one. Then pay as much as you can towards that one. 

This method allows you to eliminate credit card debt quickly. Once you are finished with one, you can quickly pay down on the next one.

Refinance to Lower Interest Rates

Consider refinancing your debt and getting a lower interest rate. This process can save you hundreds of dollars in interest and will help repay your debt off faster. 

By consolidating several loans into one, you usually end up with one smaller payment. You can refinance auto loans, mortgages, and even personal loans.

Save Money by With a Settlement

Another option is to call your creditors and negotiate a settlement. Often you can get a debt settlement deal for a lot less than what your monthly payment is. Again, you can do this yourself or contract that third party to conduct the debt settlement services for you.

Consider Filing for Bankruptcy

If none of these options are available to you, consider contacting a bankruptcy attorney. While bankruptcy is not for everyone, it can get you out of large amounts of accumulated debt. Sometimes starting over can be your best option if your debts have become too significant for you to handle by yourself. 

Because bankruptcy comes in many forms, it is usually best to talk to an attorney to see what options are available to you.

There are many different options to get out of debt. However, it is important to remember that your debt should never be ignored since it will never go away by itself. You need to be proactive and use proper judgment to find options to relieve your debt.

Developing A Financial Plan for Getting Out of Debt

Although the average person does tend to have some debt, ridding yourself of debt is the best way to achieve financial prosperity. For many people, getting out of debt can seem very challenging. One of the best ways to help eliminate your debt is to develop a financial plan that addresses the personal problems that you may face along the way. By learning how to develop such a plan, ridding yourself of debt and starting fresh should be achievable in no time at all.

Prepare A Physical Budget on Paper or Your Computer

The reason that many people end up in debt in the first place is because they didn't take the time to sit down and prepare a budget. It is all too easy to let yourself fall into debt without giving yourself a reality check on the true numbers. Add up all of your debts, money in the bank and investments to see where you truly are financially. Once you have all your ducks in a row, it is time to develop a strategy that helps you go from the red to the black.

Snowball Your Debt Into A Lower Interest Rate

While many people may question the logic of trading one debt for another, paying off a debt with a high interest rate in trade for a debt with a low interest rate is one of the best moves you can make when you are in debt. Many people will complain that they are unable to get out of debt because of the excessive interest rates. The best way to set yourself on a course towards repayment is to simply pay off excessively high interest rate debts.

Consolidate What You Can't Afford To Pay Now

Consolidation can cause you to pay more over the long-term, but in times when your income is low, it is the perfect way to avoid more drastic measures such as bankruptcy or a lower credit ranking. This process extends the period of time that you have to pay off your debt, making the monthly payments smaller and more manageable. Combined with the above process of snowballing your debt, consolidation can put you into a position where it is possible to start saving up the required money to pay off what you owe.

Pay Down Your Smallest Debt First

In some instances, you may not be able to consolidate or snowball your debts. The best strategy in such a situation is to pay off your smallest debts firsts. According to All Womens Talk, "Instead of trying to tackle the biggest debt you have since it is hanging over your head the most, switch your focus to paying down the smallest debt first. Why so? It is eating up interest just like the larger debt, yet because it is a smaller bill, you'll be able to pay it off quicker, freeing up some money per month, and freeing up an extra interest rate."

Loans With Private Entities Should Be Dealt With First

Loans with private organizations can often be hazardous to say the least. If you are unable to keep up with payments, private lenders can easily take the money straight out of your paycheck. This situation occurs most frequently with those who have student loan debt. Always focus on eliminating the debt that can cause the most financial problems first.

Peter Smith is a professional blogger that provides financial advice and tips to consumers. He writes for TitleMax, a title loan company.