How to Trudge Your Way Through Debt
Guest post by: Lovely Life Cents
Debt has become an unmistakable facet of life. If you want to start a business, you’ll likely take on debt. Going to school? There’s a loan for that. Need to buy a house? Well, there’s no chance unless you sign a 30-year mortgage. Want a brand new car? Get an auto loan. Need to build credit? You’re pre-approved for this credit card. If these strike a chord, then you get it.
Debt is a necessary evil. Most people must rely on some sort of line of credit to move forward in life. At some point, it is even viewed as a tool. For instance, whether you’re moving into a new house, paying for a wedding, or picking up groceries for the family, some form of credit can fit into the equation if its needed.
Sure, it’s useful at times, but debt can actually evolve into a big problem if you aren’t careful.
Debt drags you down. It’s plain and simple. Debt obligations often bar us from moving forward in life. It can be such a problem that some people spend years trying to claw back to the zero-marker on their net worth sheet.
Getting out of debt is a dream that many people share. It’s an admirable goal despite how typical it may sound, but even though it sounds basic, it’s not easy. Aside from winning the lottery, you’ll have to be smart and do plenty of work. Here are a couple of ways you can get yourself out of debt.
Use the Debt Avalanche Method – Power Through
The debt avalanche method is a highly celebrated debt repayment strategy. It requires patience, diligence, and hard work. Here’s how it works. You list out all of your debts (mortgages, credit cards, student loans, etc.) with interest rates and loan amounts. Order these from highest interest rate to lowest interest rate. Your new priority is paying as much as you can towards that debt with the highest interest rate. For the other debts, you need to be able to make the minimum payments for the time being.
You keep devoting as much money as you can towards this high interest debt while making minimum payments on all the others. When it is gone, you start paying as much as you can towards the next highest interest debt on your list. Keep making the minimum on the rest. Voila! Repeat this until you are debt free. It sounds easy, but keep in mind that it’s tough to pay more on any debt when you have other obligations like groceries.
Restructure Your Debt Somehow – Be Smart
To some people, this step will probably seem redundant. It involves you taking on a line of credit to pay off another debt. In other words, it’s like trading one debt for another. That sounds counter-intuitive, but it’s actually smart if you do it right. If you can figure out a way to lower your interest rate on any line of credit or debt, then you are going to see a reduction in cost, making it much easier to pay off.
This can be done in several different ways. For those with credit card debt, you could just ask your credit card company for a lower APR on your credit card. This is bold, and if it works, then start working on that debt and enjoy the savings. If it doesn’t work, you’re back where you started. If that’s where you are, then consider a balance transfer credit card.
A balance transfer card is just another credit card that usually comes with a low APR for the first year or six months with the card. You transfer your old credit card balance to this new card, and you work on paying it off while enjoying a low APR. This is meant to reduce your interest costs, allowing you to pay more towards the principal balance on your credit card debt. If you think you can pay most of it off during the introductory period and can qualify for a new card, then go for it.
That option only works for balance transfers though, but there are other avenues for different forms of debt. For a student loan or mortgage, you can refinance your debt to lower rates; these are sometimes referred to as refinancing loans. With a successful refinancing application, you essentially swap out your debt for a new loan typically from a different lender. This new loan should come with a new interest rate and repayment schedule. If this avenue is going to be worth it, then you need to actually get a lower interest rate on your debt. If not, you aren’t doing yourself any favors. Like the balance transfer, you should have a lower rate and be able to save money on interest and devote more to the principal balance.
Those are only a few ways to get you climbing out of that debt pit. It can be a tough game to play, but it’s not impossible to win. Much of your success depends on whether you can reduce your principal balance. The ideas I mentioned all come up with some way to devote more money to the principal balance. Oftentimes, this means a reduced interest rate, increased contributions, or both. Like I said earlier, it requires a lot of work.
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