Manage Debt

Ten Ways You Can
Pay Off Your Debt

or later you must come to terms with your outstanding debt
problems. The consequences of not repaying your debts are dismal –
it’s possible you could lose assets such as your home or car. Your
ability to borrow again might be limited due to a bad credit
rating. Your earnings could be garnished or you could even wind up
in court. Not a happy situation.

The good news is that there are a number of debt reduction
strategies that can help you reduce financial distress, manage
your money better, and improve relationships with creditors. Here
are ten of them:

1) Contact Your Creditors At Once:

This is one of the most overlooked ways to resolve your debt
problems. Don’t wait for your accounts to be turned over to a debt
collector. Communicate with your creditors and assure them you
will continue making payments. They are most likely willing to
work with you. Be honest and explain your financial situation.
Tell them you plan to pay off your debts as soon as possible. Ask
for a reduced payment schedule or a lower interest rate. Some
creditors might even be willing to accept interest-only payments
for a few months. It never hurts to ask.

2) Empty Your Savings Account:

Do What? If this advice comes as a surprise to you, please try and
understand that it makes absolutely no sense to have money in the
bank earning only 4% while you’re carrying credit card debts that
charge in excess of 18%. Paying off high-interest cards like these
is like finding an investment that yields an 18% return, all
tax-free and without risk. Even if you’re a stock market guru,
your investment returns would actually have to beat 18% because of
the tax consequences. If the interest rate on your debts are even
higher, the decision to repay versus invest becomes more obvious.

Your asking me to deplete my emergency fund? There are two schools
of thought to this question. You may want to leave a small cushion
in your account to absorb any unforeseen expenses or temporary
loss of income. On the other hand, if you truly need them, you may
decide to use your credit cards for an emergency situation.
Otherwise use some of the other strategies that follow (borrow
from your family, etc).

3) Increase
Your Minimum Payments:

Consider this. If you only made the minimum payment on a $2,000
credit bill with an 18% interest rate, it would take you roughly
18 years to pay it off. The interest alone would amount to $3,690.
Have you ever wondered why the minimum payment on your credit bill
is so affordable? Take a hard look at that last number and you’ll
see why lenders set your minimum payment so low (often 2-3% of the
outstanding balance). Doubling or even tripling your minimum
payments will have a significant impact on your ability to reduce
debt. Those increased dollars will save you thousands in interest
payments and shave months, if not years, off your debt. Don’t play
by their rules.

4) Pay Off The Highest Rates First:

Paying off the highest interest rate rather than the highest
balance will result in quicker debt reduction. Your debts may take
many years to pay off, so don’t allow the additional interest
charges that are still accruing to be at the highest rate. Pay the
minimum to each creditor and apply all your remaining money to the
debt that has the highest rate. Once the debt is paid off, move to
the next highest rate and apply the rollover amount from your
first debt. Continue down the list to the next-highest creditor
and repeat this process until your debts are gone. Stick with your

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