Knocking Down Debt: There Is No Magic Pill

Turn on the radio and wait for about 10 minutes. You’re going to, almost without fail, hear about some sort of get-out-of debt quick scheme. Someone who sounds rich and successful is going to tell you all of his or her secrets and you’ll be debt-free in no time. They claim they will fix your credit in under 20 days or that they will be able to wipe even legitimate debts off your records. It sounds too good to be true. That’s obviously because it is. There is no magic get-out-of-debt free card. If there was, nobody would be in debt. If these tips and tricks actually worked the way that many of them were advertised, then the companies advertising them would put themselves out of business.

That isn’t to say that you have to be stuck in debt for the rest of your life. You’re more than capable of working your way through the debts that you have accrued as long as you have the wiggle room and the ability to transfer some debts. Remember, knocking down debt is hard work that can take time. It isn’t going to go away in a month. Depending on your level of debt, it could take you years to emerge debt-free.

Readjust Your Debts

Sitting down with a list of all of your debts and your income can be a daunting experience. Even the most relaxed people can feel their hearts race and their palms get sweaty thinking about it. However, this is something that needs to be done. You need to look at what your debts are against your income, and find out what payments can be adjusted so you can begin paying those debts down and start making some headway against the problem. If you, like most people, don’t have a lot of room to squirm, you may find some help by adjusting your house payment. Checking on the refinance mortgage rates in your area and with your bank is an excellent place to start.

You may also be able to put some of your debts on forbearance or deferment. Student loans, for example, will allow you to forbear or defer your debts for months at a time. While you will still accrue interest, you can take another look at starting a repayment plan later when you have gotten a handle on your other, more pressing debts. It may sound strange, but digging yourself out of a financial hole may sometimes mean setting certain things aside and not paying them until later. It will be up to you and your family to choose how to pay things off and come up with a list of priorities, but there are some methods that have been proven to work better than others.

Snowball Method

Anyone who has listened to the money guru Dave Ramsey has heard of this technique. It’s a very to-the-point and simple method to attack the problem of mountainous debt. It asks that you first have a nest egg or an emergency fund that you can fall back on. To do this, you may have to put everything that is possible to be put on hold on hold. Get yourself a fund that will give you some cushioning if something goes wrong. Once you do that, line your debts up from the smallest dollar amount to the largest dollar amount. Focus as much of your energy as possible on paying off the smallest debt on your list first. Then move to the next, then the next. You do this until all of your bills are paid.

The reason this method works is just as common sense as the method itself. For one thing, you will feel accomplished by paying off a large number of debts. It feels good to be able to physically see an accomplishment. This will give you motivation to continue paying debts off and rewarding yourself by paying more off faster. It also works because, logically, paying five small debts off at one interest rate will save you more money than paying a larger debt over time at the same rate.

Breakdown Method

If you have a large amount of debts, paying off one at a time may feel like an impossible task. It’s easy for you to visualize paying off five debts if they are all under a certain dollar amount. However, if you have a debt that is in the thousands, the ability to knock it out may seem distant at best. One of your options is to split those larger debts up into smaller packets. You can accomplish this by using a credit card, taking out smaller loans, or by seeing if your bank has consolidation options.

Be aware, however, that you are just moving your debts around if you choose these methods. You will need to be ultra-focused in paying your debts off to avoid getting in over your head. Before undertaking any major financial changes, it always helps to consult a professional.

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