Debt is a chip on your shoulder that will constantly weigh you down throughout your life unless you decide to get rid of it. Want to get out of debt and break the debt cycle? Here are some ways you can do so.
Focus on Your Debt
One mistake that most people make is to treat debt payment just like every other payment, even though its not. The more you delay your debt payments, the higher the interest rate goes. Focus on your debt and clear it instead of paying contributions to, lets say, a retirement account. Use the extra money to pay off your credit card and then you can get back to contributing to your retirement account.
Pay More than Minimum
Paying the minimum on your credit card, which is typically just 2 to 3%, only prolongs your debt. The longer you take to repay your balance, the more the interest accumulates. Paying more than the minimum may require you to cut back on other expenses, but youll be able to save thousands of dollars paid in interest fees and it will get help you get rid of your debt much faster.
Consolidate Your Debt Payments
Consolidating your debt payments is a great way to help you avoid high-interest debt payments and will help you get out of debt much faster. Transfer your high-interest bills to the credit card with the lowest interest rate. Spend less and pay down debt by trading in lower interest rates for higher ones. You can also focus on each credit card so that you can pay it off in the least possible time and then move on to the next. This is known as debt snowballing and can be very effective.
Borrow Against Life Insurance
You can use your life insurance policy that has cash value by borrowing against it. Youll be borrowing money from your own account, and it represents a very advantageous tradeoff of interest rates because the interest rate on any such loan will be substantially lower as compared to the commercial interest rates.
Use Your Home Equity Loans
You can also use your home equity loan line of credit if you own a home and have made up equity by paying off the mortgage. This is another effective way of cutting down on the interest rate. You can use your home equity loans to pay off credit cards and repay the loan while you keep the credit cards paid off.
File for Bankruptcy
This should be your last resort. When your debt has reached an unmanageable level and you cant pay it down, you should search for debt consolidation in Houston TX or what ever your location is first before you file for bankruptcy. One way is to surrender your property to satisfy the outstanding debt and the bank relieves you of most of your debts except for child support, student loans, and taxes. Another option is to keep your property but lose control of your finances. A repayment plan will be approved based on your resources so that you can repay the debt over the next three to five years.