Being seriously in debt is just no fun. It can keep you lying awake nights wondering what you’ll do about it. Debt can even have a bad effect on your health, as the stress related to it can cause fibro myalgia, a spastic colon, arthritis, high blood pressure, and even heart disease.
Fortunately, there are tips for managing those debts, and to ultimately get them paid off. And these tips are amazingly simple.
1. Make a plan
This is something you might dread, but making a plan to pay off your debts is absolutely critical. You wouldn’t start tearing your engine apart without a plan for repairing it and the same is true of your debts. The easiest way to organize them is with a spreadsheet such as Microsoft Excel or the free Google Sheets. Be sure to list all your debts with the names of your creditors, your balances owed, and the interest rates.
There are two popular ways to pay off debts. The first is called the avalanche method. It’s where you order your debts with the one with the highest interest rate at the top down to the one with the lowest interest rate. You then focus on paying off the debt at the top of your list as this will save you the most money. The second pay off plan is called the snowball method. Instead, of organizing your debts with the one with the highest interest rate at the top, you organize them so that the one at the top is the debt that has the lowest balance. If you focus all of your attention on paying if off, you should get it repaid fairly quickly, which will give you momentum to pay off the debt with the second lowest balance, and so on.
2. Consolidate your debts
A second good tip is to consolidate your debts. You can do this several ways, depending on the type of debt. Is most of your debt credit card debts? You could consolidate them by transferring all their balances to a new card with a lower interest rate, or better, yet one of those 0% interest balance transfer cards. You would then have only one payment to make a month, which should be much easier to remember. Plus, those monthly payments will be lower than the total of the monthly payments you’re currently making.
Is your problem student loan debts? In this case, you have two alternatives. The first would be to get a federal Direct Consolidation Loan. The interest rate on this loan would be based on the weighted average of the interest rates on the loans you’re consolidating, and then rounded up to the nearest one-eighth of 1%. So, your new payment should be for a good deal less than your current payments.
Second, you might be able to get a private debt consolidation loan. Interest rates on loans such as this are now at practically an all-time low. In addition, there are a number of online lenders, where you should be able to find a pretty good deal.
3. Get counseling
Just as, if you were having serious marital problems you might go to a marriage counselor, you could go to a debt counselor for help — in the form of a nonprofit consumer credit counseling agency.
When you contact one of these agencies, you’ll be assigned a debt counselor that will review your finances and either suggest a budget designed to help you get your debts under control or what’s called a debt management plan (DMP). This is another way to consolidate your debts because if you accept the plan, you won’t be required to pay your creditors anymore. Instead, you’ll make one affordable payment a month to the credit counseling agency, which will then disburse the money to your lenders. It typically takes from four to five years to complete a DMP, but at the end you’d be basically debt-free, and you’ll have good credit.
4. Learn to negotiate
One of the things lenders don’t want you to know is that almost any unsecured debt can be negotiated. If you’re wondering what are unsecured debts, they are the ones where you weren’t required to provide any collateral. Medical debts, credit card debts, department store credit card debts, and old cell phone bills are typical of unsecured debts that can be negotiated. A good rule of thumb is to never pay one of these debts without first trying to negotiate a settlement.
The way this works is about the same as with any negotiation. You contact one of your lenders, and offer to make a lump sum payment, for say, 40% of your balance. The lender will probably refuse this offer, but will likely make a counter offer, and you then go back and forth until you arrive at a number that’s acceptable to both of you. Of course, you must have the money available to make that lump sum payment.
5. Use the nuclear option
Bankruptcy is often called the nuclear option because it essentially blows up your credit. But it is a way to get out from under most of your unsecured debts. However, bankruptcy can’t free you from secured debts like auto loans and your mortgage. It also won’t discharge alimony, child support, family support, and student loan debts. But if your biggest problem is your unsecured debts, then filing for bankruptcy would definitely get you a fresh start.