Overwhelmed by Debt? 4 Smart Financial Options

If you're facing problems with debt, you're not alone. Many Americans feel overwhelmed by debt from time to time.

paying bills

Why not take some time to study the following four small financial options for debt management?

Keep Records and Make a Budget

Find all your recent credit card and loan statements and get a free annual credit report to ensure it is accurate. Make a list of all your debts and include the creditor's name, interest rate, balance, and the necessary minimum monthly payment.

Calculate how much money you owe in total and how much you need to pay monthly to reduce your debt. It is also important to make a budget. Determine how much money you spend monthly and what you can eliminate.  

Snowball Your Debt

If you have multiple debts, financial experts suggest paying the smallest amount of debt first. This approach, a process known as “snowballing,” addresses the issue effectively and improves your mindset while boosting a lagging credit score.

However, you often need to pay more than the minimum payment each month. This option may take longer because the smaller increments, which must consistently be paid, may be more effective than starting with debts with high-interest rates.

Research Debt Settlement 

You may be eligible for debt settlement where you pay a fraction of your debt in one lump sum which allows you to improve your credit score. Agencies are reasonable because they want some money versus none at all, but you need the money to do so. 

It is often more effective to pay for a debt settlement company that can secure a better deal from your creditors and allow you breathing space. However, a debt settlement company will charge a fee. Look for a reputable company first that can help with any tax issues you have as well.

A debt settlement company also may not be willing to negotiate or will refer you to a credit counseling agency.

Think About Credit Counseling

Credit counselors assist in the process of constructing a Debt Management Plan (DMP). A DMP reduces your late fees and interest rates and allows you to make reasonable monthly payments to an account which will reduce your debt. The credit counselor then pays debts from this account.

A DMP can be a good option for those with a high amount of debt or who are unable to make monthly credit card payments. However, with a DMP, you will not have access to a credit card for a while. This plan also takes time to begin since you need to accrue a certain amount in the account before payments are made, which could involve further difficulties with your creditors.

Credit card, auto loan, personal loan, medical bill, utility bill, cell phone bill, and apartment rent debts are eligible for a DMP while federally backed student loans are not. 

In a debt settlement, you can pick which bills are settled in contrast to a DMP which involves making regular payments toward settling debt. 

Choosing debt settlement, credit counseling, or debt consolidation can be better options than bankruptcy. Bankruptcy has a much worse effect on your credit score. 

While dealing with debt is difficult, it is not impossible. Creditors are willing to work with people to address the situation. The best approach is not to let debt issues drag out but address the situation before debt becomes a massive problem. 

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