It’s not easy to dig oneself out from under a mountain of debt. It can be extremely challenging to manage regular bills and savings during times of financial stress. Making only the minimum payments to your creditors, however, puts you at risk of sinking deeper into debt, and it could take you months, if not years, to work your way out of the resulting financial rut.
The good news is that there are non-suffering methods available for overcoming your financial difficulties. You can either seek a debt consolidation loan or a balance transfer credit card to simplify your financial situation, or you can adjust your monthly spending habits to free up more cash for debt repayment each month.
Methods for escaping a cycle of debt
Don’t just pay the bare minimum; pay more than that
Consider your spending habits and the amount of extra cash you can put toward paying down your debts. When you pay more than the minimum payment on the best methods to get out of debt, you not only reduce your total interest paid but also reduce your total debt service time.
Take, for example, a credit card balance of $15,000 at an APR of 17% and a $450 required minimum payment. If you only pay the minimum each month, it will take you about four years to pay off the total completely. Interest payments will add up to almost $5,500 total.
Think about using the “debt snowball” approach
Even if you’re currently making more than the minimum payment on your debt each month, the debt snowball strategy can help you get out from under it faster. All other invoices will have their minimum payments met, but the one with the smallest balance will have its payment increased to the maximum amount allowed. While keeping up with the minimal payments on the rest of your bills, “snowballing” payments can help you quickly eradicate your lowest debt and move on to the next smallest obligation.
If you refinance your loan at a lower interest rate, you might potentially save hundreds of dollars in interest payments and make greater progress toward paying off your debt more quickly. Mortgages, car loans, personal loans, and student loans can all be refinanced.
One way to do this is to apply for debt consolidation loans, which is essentially a personal loan used to reimburse multiple smaller loans at once. You should consider transferring any existing credit card debt to a card that offers this feature if you’re already carrying a balance. Most of these credit cards have a 0% APR promotion that lasts for a set length of time, typically between six and eighteen months.
Reduce debt with windfalls earned
Instead of putting money you get from tax refunds or the stimulus package into savings or spending it on yourself, put it toward paying off your loans. You can choose to put the entire windfall toward paying off your debt, or you can split it in half and use one half for debt repayment and the other half for something more enjoyable, like a vacation or an expensive meal out.
Make a deal to pay less than what is owed to you
You can also go out to your debtors and try to work out a settlement, which will likely be much lower than the total amount you owe. Debt settlement is something you may do on your own, but there are also many companies out there that will do it for you for a fee.