Financial Updates

The warning signs are all there. Your credit card bills are slowly increasing, while more and more you have to juggle your finances to pay everything on time. Even worse is if you miss a payment and face even greater challenges with penalty fees and increased interest rates. You know you need to take action to get your debt under control, but what’s the most effective way to pay back what you owe?

There are two methods to reduce credit card debt that have proven effective for consumers. Which method you choose is largely a matter of where you are with your finances and how you feel the most comfortable in paying them back.

With this strategy of debt reduction, you focus all of your efforts to paying off your high interest rate debts first. Since these debts build faster with accrued interest, it is often more efficient to pay them off first. In the long run you save money because you pay less for interest added to your debts.

You start by taking aggressive action to streamline your budget as much as possible. This allows you to free up money that can be put towards reducing your debt. Reduce discretionary expenses as much as you can for a while and look for ways to reduce flexible expenses, such as food or gas. You may need to commit to eating at home more and taking your lunch to work, couponing, and finding people to carpool with so you can share the high cost of gas. Keep in mind these cutbacks are only temporary, so these expenses can be reestablished once your debts are paid.

Once you have as much money as possible, focus that extra cash on paying off your highest interest rate debt first. Pay all of the minimum amounts required on the rest of your credit card bills, but put everything you freed up from your budget to paying off one debt at a time. After you pay off your highest interest rate debt, move on to your next highest, and so on until you are debt-free.

In some cases – either because your highest interest rate debt is too large or because you can’t free up enough money to pay it off quickly – you may wish to use the debt rollup method instead. This strategy largely works in the same way, except you focus on paying off the debt with the smallest balance first.

This allows you to see a positive impact from your efforts faster. It can also help you gain momentum to tackle your bigger debts. After you pay off the first credit card, you can “roll up” that money with the money freed up from your budget to pay off the next smallest debt. With each debt you pay, you have more money available to pay off the next debt until you are completely free of credit card debt.

If you assess your budget and even the rollup method won’t allow you to pay off your debts efficiently, it may be time to seek help. Contact a trained credit counselor to get an assessment of your situation. They can evaluate your debts, review your budget, and provide options to help you find relief from debt.

Are you in severe debt crisis? At first, stop worrying about it and then start working on a debt relief plan that can help you pay off all your bills/debts in a systematic way. You can take professional help if you’re not able to clear your dues on your own. Read on to get a brief idea on debt solutions – how professional debt relief options help you pay off your debts and get your finances back on track. 

Here are 4 professional debt relief options that help you pay off your multiple bills/debts.

1. Credit counseling session : You should first go for a debt/credit counseling session whenever you start facing debt problems. In such a session, a credit counselor examines your financial condition and offers suitable suggestions to manage your debt properly. A counselor may also prepare a personalized debt relief plan for you by following which you can pay off your dues completely.

2. Debt management plan : A credit counseling organization may offer a debt management plan to you if suggestions and tips are not enough to pay back your dues. In a DMP or a debt management plan, a counselor, on behalf of the organization, negotiates with your creditors to reduce your loan interest rates. With your creditors’ approval, the counselor also finalizes a monthly payment that you need to pay towards clearing your multiple bills/debts. Thus, you can get rid of your debts with the help of professional guidance.

3. Debt consolidation program : There is not much difference between a debt management plan and a debt consolidation program. The only difference is that a consolidation program is usually offered by a consolidation company whereas, debt management plans are generally offered by credit counseling organizations. In a consolidation program, a debt consultant (on behalf of the consolidation company) negotiates with your creditors to reduce the interest rates on your loans, decides upon a monthly payment and gets it approved by your creditors. When you make the agreed upon monthly payments to the consolidation company, it distributes the amount amongst your creditors on your behalf.

4. Debt settlement program : You can take help of a settlement program when you have huge debts to pay off. In such a program, the settlement company negotiates with your creditors to reduce the amount that you owe to them. In most cases, the settlement companies can reduce the outstanding balance to about 40-60% of what you owe. In the meantime, the company asks you to stop paying your creditors for the time being and instead deposit an agreed upon monthly payment to a settlement account. You need to use this accumulated fund to settle the debt as soon as one of your creditors agrees upon a reduced payoff amount. Thus, you can get rid of your debts one by one by paying less than what you owe.

You can take help of a debt consultant if you cannot make up your mind as which debt relief program may be best suitable for you to clear all your dues. A debt consultant can help you to get brief idea on debt solutions along with making you aware about the pros and cons of each of the debt relief programs.