We can’t deny the fact that having a debt is somewhat becoming the norm for many due to a variety of reasons. Even if we can’t see it with the naked eye, we can feel how people nowadays are struggling financially.
People borrowed money due to the insufficient amount to pay for their rent or car loan or even just the daily expenses of the family. Sometimes it’s also due to emergencies like medical and family financial problems. But there are some ways on how to pay your debts faster to lessen your burden and to avoid having another debt to pay your current.
Check your Debt and Budget
Check and record down your debt in credit card and, if you have, to your friends or colleagues. Presently that you have determined your total debt, check your monthly income and expenses. Based on it, have a thorough plan on how you’re going to pay your debt assuring that you will still have an ample amount for your savings.
Stop using your Card
For the meantime, you may stop using your credit card until you’re settled paying off your debt. It will also help you with your credit score. The lower credit utilization, the higher the credit scores are. Credit utilization is the ratio of your debt balance to your available credit.
Have you tried making a snowball? You begin with a tiny ball then you keep on adding more snow until it gets bigger. Paying the debt also applies this method. Chunks your debt and order it from smallest to the highest amount.
Contradicting to snowball is the avalanche method, where the focus is on the highest amount. Seeing an enormous amount on your debt is an eye-sore, therefore, having it erased first allows you to breathe normally.
Balance Transfer Method
If you have two or more credit card, another approach is to transfer the balance of the card with the highest rate to a card that has the lowest interest rate. The money saved in paying for interest rate can be added to your next payment. It’s like the snowball method however you are using your other card to pay off another card.
If you have only one credit card, some banks offer a promo of an introductory APR of 0%. However, when intending to open a new account, read the agreement thoroughly. Take a glance at the fees after the introductory period. Is it higher or lower than what you’re currently paying? Avoid the scenario of opening another account. Remember that a new account can get you a hard inquiry hence lowering your credit score.
Borrow from your Retirement Plan or Life Insurance
Another way is to borrow from your retirement plan or life insurance. Have you previously purchase a retirement plan? Interest rates are lower than a credit card, and you repay instantly to yourself, not to the lenders. There are retirement plans that let its client acquire a maximum of 50% from their account.
For your life insurance, the interest rate is also lower than a card. Check the policy of your insurance because some company doesn’t have a specific deadline for the payment. Just make sure it will be fully refunded before your time goes out or your loved ones will take the liability of repaying debt.
Negotiate with Creditors
If you are still having a difficult time repaying your debt, strive to negotiate with the creditor. Communication is the key. Let them know your current status. Ask them to have a little adjustment on the schedule of payment, or if they can lower by a few on the interest rate. Look as pity as you can to grant your request and set aside your pride if you want to survive.
File for Bankruptcy
Filing for bankruptcy can seem like an option, but it’s one to avoid option if at all possible. It’s often considered a last resort, and if you feel it might be an option, it’s best to speak with a financial advisor (or two) to ensure you have explored all your options.
There are two types of filing a bankruptcy case:
- Chapter 7 – You will abandon your property to settle the debt.
- Chapter 13 – You have the privilege to retain your property, though, the court will handle all your finances. The repayment plan will be based on your income status. If the accepted plan was fulfilled, you will be free from bankruptcy. However, this incident will be registered to your credit record for 10 years. And you will have a hard time getting a new credit account card.
Life can be miserable at times, but it doesn’t have to be. When borrowing money, being responsible in managing your own finances can relieve some of the burden.