Here are four options for people who are deep in debt to consider before bankruptcy.
Dig Deep into How You’re Spending Money
When you’re deep in debt, you need to start understanding exactly where your money is going. With this knowledge, you can act in ways that will help you reel in spending and ultimately get out of debt.
Budgeting is one of the best ways to start drilling down into your spending habits. But if you’ve been unsuccessful with budgeting in the past, it might be tough for you to instantly turn into a budget champion. What should you do if you’re in this situation?
One idea is to use a budgeting app on your smartphone. There are lots of options out there these days. You’ll almost certainly be able to find one that meets your exact needs. You can even link your accounts to automatically track your spending by category.
Refinance or Transfer Your Debt
Interest is one of the most difficult aspects of debt, as it can play such a massive role in the amount people owe on their loans. Overlooking this key feature can lead to you paying a lot more over the long term, and even ending up with insurmountable debt.
There are few things people with unfavorable interest rates can do to alleviate some of this pain. Individuals with a mortgage can try to refinance their loan to a lower interest rate. This can make a big difference considering it’s such a lengthy payment period, and a major part of your overall budget.
It’s also possible to try a credit card balance transfer. This is where you take the balances on high-interest accounts and transfer them to another card with a low introductory rate. It’s important to note that this rate will end at some point, so you need to work to pay down that debt before that happens. Plus, there’s often a balance transfer fee associated with doing this.
Work with a Debt Relief Company
Before you jump straight to bankruptcy, reach out to a reputable debt relief program to see if they can do anything to help. There are many strategies debt relief agencies can use to help consumers strike a better deal with their lenders, like negotiating with creditors on behalf of clients in an attempt to settle for a percentage of the original balance.
Some organizations even combine debt settlement with a debt consolidation loan. Clients eligible to take part in Freedom Debt Relief’s Consolidation Plus program, for example, take out a debt consolidation loan to speed up the settlement process with creditors. Then they’re able to focus on repaying the single loan back to the agency rather than trying to juggle multiple sbalances from multiple creditors. This can greatly simplify the whole process while also reducing the total amount you owe.
Create More Plans for Your Money
Your money will go further if you create action plans for how to spend it and reduce your debt. There are a few ways you can approach this.
First, you can consider the benefits of creating savings plans. This is where a part of your income automatically gets sent to a special savings account. Doing this can allow you to build an emergency fund so you don’t need to take out debt when an unexpected expense crops up.
You can also try using debt payoff strategies like the “avalanche” or “snowball” methods. This is where you attack your debt by paying off the highest interest rate loans (avalanche) or lowest balances (snowball) first. Research has shown the snowball is generally the most effective because the psychological boost behind paying off small debts propels people to keep going until they’ve paid it all off.
It doesn’t matter if you’re deep in debt. There are options out there for you to get out of that tough place.