Debt is something no one ever hopes to accumulate, but it’s something that can accumulate and often through no fault of your own. Unexpected bills and emergency expenses can cause debt to pile up fast. If you’re currently overwhelmed with debt, there are actions you can take to reduce or eliminate your debt as fast as possible. Below are 11 actions you can take to reduce or eliminate debt.
1) Put Together A Budget & Stick To It
Taking control of your finances means first understanding them. Start by putting together a budget with the money you make and all of the expenses you pay. Hopefully in participating in this exercise you’ll be able to find some expenses you can cut. The money you save cutting expenses is extra money you can commit towards paying off debt. Once you’ve finalized your budget you’ll have to work hard to stick to it to continue paying off as much of your debt as you can.
2) Work With A Credit Counseling Agency
There are credit counseling agencies that will help you negotiate with creditors on your behalf. They’ll help you put together a payment plan, which typically lasts four to six years. Everything the credit counseling agency does, you could do on your own, but some people like the management and structure that an agency provides.
3) Consider Bankruptcy
Filing for a chapter 7 or chapter 13 bankruptcy is always an option. Chapter 7 will help you eliminate unsecured debts while chapter 13 will help you pay back your debt with a structured plan that works for you. Bankruptcy is a protection given to all citizens by the US government. It’s not something to be ashamed of, but it will affect your credit score for several years, so it’s a decision that shouldn’t be made lightly. A bankruptcy lawyer can help you decide if filing for bankruptcy is right for you.
4) Focus On One Debt At A Time
Trying to pay off multiple debts at the same time can be overwhelming and you may spread yourself thin. One easy way to pay off debts faster is to focus on one debt at a time and give that debt everything you’ve got. It’s easiest to start with your smallest debts first. Pay everything you can towards those debts each month and once you finish paying off one debt, you can then move to the next.
5) Avoid Creating More Debt
Avoiding to take on more debt won’t necessarily help you get out of debt, but it will keep you from increasing your debt, so that you can focus on paying off what you already owe. The easiest way to eliminate the temptation to take on more debt is to freeze your credit cards. Not everyone may be able to stop taking on more debt, but if you have the ability to do so, you should.
6) Increase Monthly Payments
Monthly interest can exponentially expand the amount of time it takes to pay off debt. The less you pay towards your debts each month, the longer it will take to pay off your debt. You want to make more than the minimum payment each month if you can.
7) Create An Emergency Fund
It might seem counterintuitive to save money when you have debt accumulated that needs to be paid off. However, an emergency fund can keep you from incurring more debt from emergencies like car problems and injuries. These expenses are big expenses that pile up fast. Ideally, an emergency fund grows to be big enough to cover six to twelve months of living expenses. However, even establishing an emergency fund of $1,000 is a good starting point to keep you out of some trouble.
8) Ask Creditors For A Lower Interest Rate
You may not know this, but it’s actually possible to negotiate with creditors for a lower rate. Creditors would prefer to receive all of their principal back with less interest than receive only a portion of their principal loan back. Customers with good payment histories are the ones who will be most likely to receive a reduction in interest rate.
9) Cash Out A Life Insurance Policy
Taking cash out of your life insurance policy is a risky action and something that isn’t advised unless it’s absolutely necessary. Borrowing from your insurance policy can affect your death benefits and you may also incur taxes. If you absolutely need to, you may be able to take cash out of your whole or universal life insurance policy if you’ve accumulated some cash. You can then use this cash to pay off some of your debts.
10) Settle With Creditors
Debt settlement usually only occurs with accounts that are in default or at risk of defaulting. In these cases, you may be able to negotiate with creditors to pay a one-time lump sum payment to settle your debt without repaying the entire debt.
11) Withdraw From Retirement
This should never be your first option. In fact, it’s not advised to pull money out of your retirement account unless you absolutely have to. Nonetheless, in extreme cases you could pull from your retirement account to pay off debt. Before you get to this point, it’s probably worth considering bankruptcy first.