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With debt concerns more prominent than ever in society, many people are finding themselves faced with having to snowball- with more debt then they may have thought possible. When debts are mounting, the absolute worse thing you can do is ignore the situation. By avoiding your financial responsibilities, you are only adding to your own problems. The only solution to your debt problems is to tackle them full on and start paying them down (and off!) as soon as possible. Paying off debt for good takes a serious commitment to allocating your monies towards debts. It will not always be an easy road but it will certainly be one worth traveling, as the end result is financial freedom.
So, how can you pay off those debts? Here is a list of ways to start paying down your debts fast:
Stop Spending!
Once you have made a commitment to paying down your debts, you will have to stop spending. Do not continue to buy anything you can not pay cash to get. Adding additional charges to an already high credit card balance will not help you pay off your debts. Create a reasonable budget that incorporates the funds you need to put as much money as possible towards debts and then stick to that budget at all times. Savings may even have to be put on hold while you work towards paying down your debts.
The Snowball Method
Creating the perfect snowball takes time. Starting with a little chunk of snow, you must patiently roll it into a larger and more formidable snowball. The same theory works with debts too. You must first gather all of your debt balances and make a list of what you owe. Next, prioritize your debts. For instance, you have a credit card with a maxed out balance and a high interest rate. The idea behind snowballing your debts is you begin focusing your money towards paying off that one single debt. You should still pay your mortgage, utilities, and continue making at least the minimum payments on other credit cards, but the majority of your money should go towards paying off that one debt. Once payoff has been achieved, you take the money you have been paying on the now-paid off account and put it towards your next debt. You continue this snowballing cycle with all of your debts until everything is paid in full. As you get down to your last remaining debts, you likely will be debt free faster because the available payment money will be much greater.
Make More than the Minimum with Payments
If snowballing your payments isn't possible, you should at least attempt to be paying an additional percentage of money towards the outstanding balance each month. If you can even double the minimum payment, you can get out of debt much faster. Making only the minimum payments on your credit card bills each month will only drag out the time line for payments. With added fees and interest, it can take up to 30 years to pay off a few grand on a credit card.
Find More Income
If making more than the minimum payments towards your debt each month is not always possible due to financial constraints, consider getting a part time job and commit to using all of the money you earn strictly towards the repayment of debts. It may take some time and schedule adjustments but once you have found financial freedom, you can leave the second job behind and focus on staying out of debt.
Seek Professional Help
If you find that you are not able to work your debts out on your own, it may be time for some professional assistance. There are plenty of non-profit agencies and debt consolidation services that have just the right formula for reducing your debts. Because there are also a lot of less-than-reputable places on the market as well, you need to do your research and find a company that is right for you. Not every place will have the same terms and conditions. Contact places of interest and interview them to find out if their counseling or consolidation practices will work for your budget. Seeking the advice of professionals and then committing to their recommendations for debt reduction may be a great resource for those who can't seem to get out from under debt but do not wish to file for bankruptcy.
Instead of running from your situation you need to take positive steps to fix it. If you reach the stage where you can't keep up with the repayments, it's VITAL that you contact your creditors as soon as possible and explain your situation.
It will help your situation greatly if you mange to contact your creditors before they contact you.
It will show them that you take your situation seriously and have taken responsibility for the state of your finances. It will reassure them that they're more likely to receive their money….eventually!
Now this may be hard to believe, but your creditors won't want to take court action against you unless it's absolutely necessary.
Would you like to know why? Well first, all court action is time consuming, costly and unpredictable. It's generally a last resort, when all other avenues have been exhausted.
Second, it's a question of maths. It's just a simple commercial decision. If you were in the business of lending money and someone was having trouble repaying you, let me ask you a question. Would you rather receive all of it over a much longer period that originally agreed, or 20 cents in the dollar months later when the bankruptcy courts get it all sorted out?
Exactly! There's no contest. Bankruptcy benefits nobody (well, apart from the lawyers and accountants, but that's another matter!)
And most lenders realise this!
If they're offered a reduced payment schedule over a longer period, most will be glad to accept it. In most cases it will allow them to receive more of their money back than the alternative of bankruptcy. And that my friends, is your opportunity to find a solution to your debt problems!
Contact Your Creditors Early
As soon as you know you won't be able to keep up with your repayments, get in touch with your lender. Write to them explaining your situation, giving them the reasons for your financial difficulties. Creditors will often be open to negotiation, and dare I say it, quite helpful. As I say, they just want to ensure that they get as much of their money back as possible. It may be possible to work out a more suitable repayment schedule that will allow you to pay off your debts.
If you ignore your creditors, they'll have you in court quicker than you can say bankruptcy! Ignoring letters from creditors tends to make them ratty. Remember, they don't want to take legal action, unless your actions force them to! But if your general attitude says to them ‘I'm in this position because I spend recklessly and have a cavalier attitude towards my debts', they won't have any choice.
Once you've drawn up a personal budget and know how much you can afford to pay towards your debts each month, contact your creditors and make them an offer. It's best to keep your offer of reduced monthly payments as brief and precise as possible. But above all, make it honest and realistic.
This is good ‘I would therefore like to offer $15 per month to repay this account'.
This isn't ‘I'm hoping that things will get better over the next couple of months, so I'll increase my payments as much as I can at that time'. Rubbish! The lenders would laugh in your face at that sort of offer!
And whatever happens, when it comes to making an offer of reduced payments, don't bluff your creditors.