Debt Nation: Are You Trapped In Debt? Here Are 6 Ways To Get Out Of It
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The idea of buying something that you can’t afford by using someone else’s money is compelling enough to get people into a debt trap. If you don’t get out of it, you may end up relinquishing the best years of your life.
The idea of buying something that you can’t afford by using someone else’s money is compelling enough to get people into a debt trap. If you don’t get out of it, you may end up relinquishing the best years of your life.
Here are 6 ways to get out of debt:
- Don’t Add To Your Debt
The worst thing you can do when you are already mired in debt is to get more debt. A homeowner thinks that by getting a second mortgage on his house, he would be able to “buy some time” – generate enough income to clear out the first debt. Wrong.
The homeowner may think he is being strategic but given the unpredictable nature of business, he is gambling his future by getting a second mortgage. The same can be said of the credit card holder who avails of a cash advance from the credit card company in order to settle his outstanding account.
Getting more debt to get out of debt is like throwing gasoline to a fire. Don’t do it. Focus on your initial debt and find ways to reduce it.
- Bump Up Your Monthly Payments
The minimum monthly payment option offered to you by credit card companies is like the cobra lulling you into a state of complacency before it strikes you down. Before you know it, the debt has swollen to unmanageable proportions. So while you are making your way to the poor house, the credit card companies are striking it rich.
Don’t be pulled into the minimum monthly payment scheme. Pay off more than what is required. If it’s not possible to settle the entire balance, try to pay off 50% of the amount. The interest charges will keep adding up unless you settle a larger portion of your debt.
- Pay It Off – One Debt At A Time
Are you in debt with various creditors – credit card, home loan, student loan, and auto financier? Pick one of the debts and focus your time and energy in getting it settled. Closing off a debt is like a breath of fresh air. Getting off your back will feel like you’re free of heavy chains. It will give you more financial flexibility to work on the other creditors.
- Negotiate For Lower Interest Rates
If you pay your debts on time, it will be easier to negotiate for lower interest rates. Credit card companies may agree to lower the interest rate if you settle a big portion of your outstanding amount.
For home and auto loans, read the contract first. In most cases, the rate is tied in to the term of the loan. If the term is longer, the rate is higher. State your case to the loan officer – why a lower interest rate would be advantageous for both parties.
If possible, present some studies – cash flow and projected income statement – to show the loan officer that with a lower interest rate, you will be able to manage the outstanding loan much better.
- Realign Your Budget
Thinking of buying that new dress watch for Christmas? Planning on going to Europe in the summer? You may have to set aside the wish list in order to pay off your outstanding loan. The sooner you can clear out your loan, the earlier you can proceed to the wish list.
- Propose A Settlement
After all those highly-charged phone calls and barrage of threatening e-mails, one thing remains clear: Creditors want to get paid.
Let’s take for example a home loan. If your home is foreclosed and auctioned off, the bank may not get back the money it had lent to you. The same can be said when a car is repossessed.
Propose a win-win settlement with the creditor. You might be surprised to learn that many of these creditors are open to settling the final balance rather than wait years for a repayment of the loan.
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