We all know that debt has devastating effects to your future. We have heard and read about it time and again – how it ruined the lives of individuals, families and friends. It will not only ruin your future, it can also destroy your relationships and the potential for a quality lifestyle.
Despite this truth, Americans are still not over their habit of borrowing money and growing their debt balance. According to an article published on Reuters.com, the outstanding debt of American households increased by $129 billion compared to the previous quarter this year. The main contributor to this increase is the $116 billion increase from mortgage debt. Only a small increase was noted for both student and auto loans. These changes left the overall debt of American consumers to a whopping $11.65 trillion. Based on the data taken from the Federal Reserve Bank of New York, we have reached a debt balance that is a mere 8.1% lower than the peak debt in the quarter 3 of 2008.
5 steps that will help lower your debts
Before we go any further in debt, you need to recoup your losses and start paying of your credit more aggressively. Thankfully, there are several ways to do it and the Internet is awashed with tips on how to make this happen in your life. And if you need some form of encouragement, you will always find real life stories of individuals, couples and families who successfully got out of debt. While the methods to get out of debt may vary, they all say the same thing: it is difficult yet rewarding.
The story of a couple struggling with debt is featured in an article published on Kansas.com. The couple had the same backstory as other Americans – being laid off and left unable to pay off the debt that they have accumulated over time. The $54,000 worth of debt that Shawn and Melissa Horseman carried now became an unbearable burden to them.
But with a little determination and a lot of sacrifice, they were able to get out of debt in 13 months. If you are willing to do what it takes to get rid of your debt balance, then you can achieve just about anything.
If you are determined to get rid of your debt problem, here are 5 steps that you can follow to aggressively lower your total debt amount.
- Create a new budget. Sometimes, a new budget plan is all that you need to get yourself out of debt. Even if you are already following a budget and your debt balance is still growing, that means there is something wrong with your current plan. You need to start from scratch in creating your budget so that you can restructure your finances to support your new goal – which is to pay off your debt balance. In case you are having a problem sticking to your budget, you may want to revise it further. Concentrate on your expenses to see where you can save further. If you have to downsize your lifestyle, that is what you may have to do.
- Limit your spending. Just learn how to say no. This is very important. The problem with us is we base our spending on how much we earn. This is not right. You have to base your spending based on what you need, not what you can afford. For every purchase that you want to make, ask yourself if it is something that you really need. If not, then just say no to unnecessary spending. Limit it only to what is essential.
- Keep your cash where it is hard to access. If you are trying to limit your spending, you may want to remove the temptation to spend in the first place. Maintain only the credit cards that will give you rewards based on your spending lifestyle. If you have to go out on a buying errand, bring only the amount that you expect to spend based on your shopping list. Add a little extra in case of emergencies.
- Earn more if you can. Obviously, trying to pay off your debt balance means you need to get your hands on more money. If you can capitalize on your hobby to earn extra money, you need to sacrifice your time and effort to make it happen. Baking cookies to sell online usually helps. Offering to gift wrap Christmas presents for your neighbors and friends and getting paid for it will also help you earn money. These are some of the things that you can to do in order to increase your debt payment fund.
- Get rid of possessions you do not need. It may seem like something that will not help in lowering your debt balance but there are some benefits to decluttering your life. If you sell off the things that you own that is no longer needed, you will earn extra money to pay off your debts. Not only that, having less things will help you downsize your home. A smaller home will not cost as much in both upkeep and utilities.
Debt settlement as an option to reduce your credit balance
To complete your efforts to achieve debt freedom, you also need to choose a debt solution that will help reduce your debt balance. If it is debt reduction that you need, debt settlement is the best option for you.
In defining debt settlement, Investopedia.com mentioned that everything is negotiable. This is the perfect way to describe what this debt solution is all about. You negotiate your debts with the lender or creditor that you borrowed money from. You will ask them to allow you to pay off only a portion of what you owe and whatever is not paid will be forgiven.
If you think that the pros and cons of debt settlement is something that you can live with, you need to learn how to approach the negotiations properly.
Based on the strategies provided by Nolo.com, here are the things that you need to remember when negotiating your debt balance.
- Start with bankruptcy. One of the things that will scare creditors and lenders is the thought of you filing for bankruptcy. If you declare bankruptcy, there is a chance that they will not get any payment from you – especially creditors.
- Ask for 50% debt forgiveness. Start low so that you have room for negotiations. The usual percentage is around 30% and at least, this will give you a starting point. In case the creditor or lender asks for something higher, it will not be too much for you.
- Make sure you have a lumpsum amount to pay for your debts. In some cases, people use their 401(k) or their tax refund to boost their debt settlement fund. Or it can come from your savings.
- Know the general situation. The thing with debt settlement is you are dependent on the creditor or lender. If they agree to settle with you, then your debt solution is successful. If not, you will be left with the same debt balance as when you started. This is why you need to know as much as you can about the lender or creditor that you will be negotiating with. That way, you can gauge how amenable they are in accepting debt settlements. You can revise your negotiation tactics this way.