If you are in debt, you will feel the stress of not being in good financial standing every day. You will see that at the beginning of the month, most of the money from your paycheck is paid off to give credit card bills and loan installments. If you keep on paying the minimum balance every month, you will find yourself in an infinite loop, which never seems to end. Accidentally, if you miss a month’s payment, your debt amount increases and if this repeats, the pile seems to be so big that you won’t be able to figure out how to pay back the money. Debt can make people’s lives devastating. If you are in debt and want relief from it then here are some proven ways.
Make your expenses lower than income
You should spend less than what you earn. Credit cards have given us the freedom to buy anything anytime. But you should make it a habit not to use the credit card for buying things unless it’s emergency. Use your debit card to purchase things. You should create a well-thought budget for every month and try to stick to it. You should try to save as much money from your income as possible and pay off credit card bills. Always try to pay more than the minimum balance. The interest rate on credit cards is high; so if you take too long to pay, you will end up paying more interest. You should put a check on your spending habits. Don’t spend unnecessarily. Avoid going to expensive restaurants or concerts. Instead, find cheaper or free entertainment like watching TV or reading book.
Increase your income
You should try to get a second job to support yourself. You will find many weekend jobs where the pay is good. Keep the money from your second job for paying off your debt. You can also do an online job from home or start a home business. If your current job has overtime facility, then you can take full advantage of that facility as well.
You can use loans to consolidate your debts into one. For example, you can take a loan of $50,000 at an interest rate of 5% and pay off all your credit card debts and other loans. Then slowly pay the consolidated loan at a lower interest rate for a long period of time. This way you don’t have to pay multiple bills every month and you will pay less interest also. It is easier to maintain one loan account than multiple ones.
Negotiate deals with creditors
You should create a spreadsheet and write down all the debt amounts you owe to different credit card and loan companies along with the interest rates. This way you will know how much you have to pay back in total. Then you should call each of your creditors to explain your difficult financial situation and ask them how they can help you. One thing they can do is bring down your interest rate. For example, if you are paying a 14% interest rate, then they might bring it down to 12%. They can also get you into a repayment program where you will pay a fixed amount for a certain period of time. After that period, you will become debt-free. You can also negotiate a debt settlement with them, where you actually pay less than what you owe. A debt relief company can help you with debt settlement programs.
If you find no way of paying your debts, you can file for bankruptcy. This will have a serious negative effect on your credit history. You may not get any loan again from banks or other financial institutions for the next few years. After that even if you get a loan, it will be at a very high-interest rate. You might have a problem in getting house rent. You will have to pay more for your auto insurance as well. For the next 10 years, your credit report will show that you had filed bankruptcy. You might even find it difficult to get a job as many employers today check credit history before giving employment. There are two types of bankruptcies you can file; one is chapter 7 and the other is chapter 13. In chapter 7, all your assets like car, home, furniture, etc. will be liquidated to pay off the debt. In case you don’t have any asset, you need to file for chapter 13 bankruptcy.
It is not easy to get rid of the habit of using credit cards. Everyone is using it and the credit card companies are encouraging you to use it with their different lucrative offers. You will be surprised to know that every household in America has on average $15,000 credit card debt. The interest rate of these credit cards is also very high; it’s 14% for most credit cards. The consumers find it very difficult to pay off the minimum monthly amount. Yet, they don’t stop using their credit cards. Offers like ‘credit-free period of 1 year’ also prompt consumers to buy expensive items like a TV with a credit card even if it’s beyond their affordability. We must realize that debt is the biggest hindrance to our personal financial growth. When we will retire, we won’t have a house to live in or we may not have the money to pay our medical expenses. We should give up the habit of using a credit card and concentrate on saving money for our retirement.