If you are facing mounting debt, you need to get some help! There are a number of different debt reduction strategies you consider, and the right one for you depends on a lot on your financial situation and the amount of income and debt you have.
Understanding Debt Reduction Strategies
Begin first by understanding the various strategies to reduce or eliminate debt:
- Budget – get on a spending and saving plan and put it on paper! The only way to truly understand the extent of your debt, pay it off, and never get into it again is by changing your perspective on your finances all together. You simply need to teach yourself not to purchase on credit things for which you do not have cash! To do this, you need a detailed, well-organized budget. If you don’t feel like you are the budgeting-type, remember that there are many FREE budgeting tools available online to help you get started. There are also numerous financial planning experts who can assist you in the process.
- No-interest borrowing – after developing a budget, and determining how you might begin preventing future debt, consider ways to begin paying off the debts you currently owe. You can do that by borrowing money from family or friends, those who are reliable and who will not charge you interest during the repayment period. Borrowing from a wealthy aunt who is willing to help you certainly beats paying mounds of interest on credit cards.
- More work – consider taking a second (or even a third) job to help you pay down your debt. Earning more money may seem impossible given your current schedule, but even a few hours on the weekends can help you begin to dent your debt load.
- Debt consolidation – you can consider bundling your debts into a home equity line of credit to simplify your payments, but BEWARE. Consolidating debt only moves it from one place to another, and leaves you with a seemingly insurmountable load all in one place. Debt consolidation can also cost you much more in the long run, particularly if you consolidate your debts over a long period of time in order to lower you monthly payments. You also would be “securing” your credit card debt if you paid using the equity of your home. In other words, it would be a debt you still owe or that could ultimately result in the loss of your home if you can’t pay it off.
- Debt settlement – You can try to settle your debt for a particular amount. Again, beware because debt settlement loans can cost you, particularly with income taxes.
- Bankruptcy – If all else fails, you can declare bankruptcy for relief from debt. This is a negative stain that remains on your credit report for 10 years, so be sure to consider your other options first.
When you find yourself struggling with debts you cannot pay, you may wish to get the advice of an experienced attorney who deals with debt consolidation, negotiation and settlement. Your lawyer can assist you in exploring any and all legal options for debt reduction and can provide you with advice on what your best course of action is in light of your particular debt burden and financial picture.