With the different options, we have today, solving debt problems is becoming easier. The twelve most common solutions to get rid of all your debt include:
- Debt management plans
- Negotiations of debts
- Debt consolidation
- Debt consolidation loans
- Financial advice
- Refinancing
- Retirement
- Union of credits
- Home Equity Loans
- Insurance
- Credit cards
- Bankruptcy
- Debt management plan
The ideal way to start solving your debt is through a payment plan that you can make yourself.
Planning a budget and avoiding any unnecessary expense are two very important aspects of a debt management plan. If possible, consider working overtime and using that income for your plan. Similarly, if personal discipline is a problem, you can schedule automatic payments at your bank.
Debt negotiation
Through debt negotiations, a company representing you can negotiate with your creditors to reduce the amount you owe.
Debt negotiation agencies work with your creditors to reduce the balance of your debt, sometimes up to 50-75%. Most debt negotiation companies are clear about the amount they will charge you, but there are no hidden expenses in the negotiation process.
Debt consolidation
Consolidating debt is a beneficial process to help clear numerous debts. In this process, multiple debts are consolidated into a single amount paid on through a single payment each month.
The interest on the consolidated debt is usually lower than the interest on the individual loans; however, if a person uses a home equity loan to consolidate debts, their home will be the collateral for that loan. Therefore, if they cannot pay, the lender can take the house and sell it to recover the money borrowed. Also, keep in mind that if the time to pay the consolidated debt is greater than that of an original loan, you will be paying more interest even if the interest rate is lower.
When you contact a debt consolidation company, the advisor will first analyze the amount of your current debt and then negotiate with the creditor in your favor to reduce the amount of debt.
In most cases, interest rates are reduced, and late payments and taxes are occasionally eliminated. Once the total amount of the debt is reviewed, it is divided into monthly installments that make it easier to pay off.
Debt consolidation loans
Debt consolidation loans help you combine all your outstanding debts into a single loan. For example, you can have a loan with a balance of $2,500 and interest rate of 15%), a credit card balance of $1,000 with an interest rate of 12%, and a balance on a shopping card of $500 with 10% interest. All these amounts could be consolidated in a $4,000 loan at 8% interest.
The purpose of a debt consolidation loan is to reduce the monthly payments since either the interest rates fall on the new loan or the repayment period lengthens.
Financial advice
Financial advisory companies help you eliminate your debts, but they do not consolidate them. Instead, they will develop payment plans for your outstanding debts with a lower interest rate and fees.
You will make a monthly payment to the advisory company, and the company is responsible for paying all your creditors. However, you must be extremely careful when choosing a consulting company.
Refinancing
This process consists of refinancing your home and paying your outstanding debts.
Refinancing at a lower interest rate will help you eliminate debts with higher interest rates you are currently paying. You can develop a plan with a lower cost than your current one since the loan can be extended to pay it off in a longer time. However, if you increase the payoff period, the interest also increases. You need to clearly understand the total cost of refinancing because failing to pay means you will lose your property.
Retirement
If you have a retirement plan with your company, you may get a loan from the company equal to your retirement savings.
This type of loan is a better option than withdrawing money from retirement since it saves you from paying additional taxes and penalties of up to 10%. However, if you cannot pay the loan after a period, you will have to pay the taxes and penalties. Unfortunately, if you lose your job, you would have to repay the loan immediately and pay the taxes for the early withdrawal of the money.
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