Debt can prove itself to be a burdensome load to carry if it remains unpaid for an extended period of time. Between interest rates that extend the shelf life of the loans and the principle, it can get very cumbersome making payments and not feeling like it will get paid off any time soon. This is common because there is no plan in place to get out of debt. This is primarily due to poor habits and unwise money management. If you fail to plan, you are planning to fail. Here are the various steps towards getting out of debt, as explained by the experts at Hornet Partners.
Try to Lower Your Rates
High-interest rates on existing debt may cause it to mount and paying it off will become much more difficult. Therefore, if it is possible, you want to lower those interest rates as much as possible and as quickly as you can. In order to do so, you might need to consider a few things. First, if you have a great credit history, you may qualify for better interest rates, especially on credit cards. You should also call card issuers to ask for lower rates on balances on your credit card. This also applies to auto loans.
If your debt is in the form of student loans, you should check out income-based repayment plans and loan consolidations at Studentloans.gov. If you have concerns regarding consolidation, Hornet Partners are an industry expert that can assist you in this regard.
Know Your Numbers
One way you can have a concrete plan in place is to know what the amount you owe is. That way, you may have a clear idea of what you owe and what your monthly payments will be looking like. The easiest way to go about this is to total the three-year pay-off amounts on credit cards, add the monthly payments for all other debts, and you may see what you owe each month. It can be easy to get off-track and get sporadic with your monthly payments if you are not organized.
Have A Specific Strategy in Mind
You can prioritize paying your debts in a litany of ways. Perhaps the first thing you should consider is to determine if the total monthly payment is something that you can afford until the debt is paid in full. If it is not feasible for you, a credit counseling agency should be consulted for advice. Bankruptcy can also be an option but be advised that this can have a significant effect on your credit score. That is why avenues of working out payment plans with your creditors should be prioritized. Hornet Partners has valuable information on these topics, especially in regard to strategizing debt payments.
Something else to think about is which debt you want to pay off first. You can choose this based on what has the lowest balance or the highest interest rate. This can be dubbed your “target debt”. Paying in this kind of way is also commonly known as the “snowball method”, which has received much positive feedback.
Have an Emergency Fund Ready
Sometimes, when you are paying debt, you may believe that there is no money at your disposal for savings. However, you should not get trapped into thinking this way. If you analyze your daily spending habits, you should be able to see that there are areas that you can make cuts. It is all a matter of discerning your wants and needs. For example, if you find yourself eating out a lot, or making monthly subscription payments for video streaming services, that’s money that can be used towards monthly payments. If you do not want to put that towards paying off debt, all that extra money can be used towards an emergency fund when there is nothing left.
Another way to put money towards your emergency savings is to automate them. It can be hard to do it in a manual sense, but having your employer contribute a part of your paycheck to a savings account can prove to have its benefits. Ideally, you may want this to be in the 10% to 20% range. For the purposes of getting out of debt, this may be unreasonable, so you can start with a number as little as 5%. Also, be on the lookout if you happen to get a pay raise or a bonus and see if some of that money can be used for your emergency fund.
As you can see, paying off debt can be a cumbersome process, but with smart strategizing and having a plan in place, you will be able to start making consistent payments. Eventually, the day will come where you may be able to live a debt-free life.
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