It's never fun to realise you're in financial trouble, but you should never try to ignore the problem by pretending it doesn't exist. If you're having trouble making your monthly payments, need to borrow money or use credit cards to pay for everyday expenses, or have had one or more of your credit accounts turned over to a collection agency, it's time to take control of your debts. Here are five ways to pay down your debt. Some take time, and they all require some level of commitment and work, but it's worth the time to start getting out of debt.
1. Make a plan for your money and stick to it.
The first step to getting your finances under control is to take an honest look at your situation. Sit down and make a budget that includes everything you earn and everything you spend. First, write down all of your money. Next, make a list of all your "fixed expenses," which don't change from month to month. Some of these might be your rent or mortgage payment, your car loan payment, and your utility bills if you're trying to stick to a budget. Next, add in any bills and expenses that change from month to month. Lastly, write down all of your daily and regular costs for things like transportation, entertainment, and other things. Your goal is to make a budget that lets you pay for all of your monthly fixed costs and figure out where you can cut costs to start paying off your credit card and other debts.
2. Talk to your debtors.
Communication is one of the best ways to get through hard times with money. Your creditors would really rather not have to do more to get the money they are owed from you. After all, it costs them more money to hire a collection agency to take care of your debt. As soon as you realise you're having trouble making ends meet, you should call your creditors and tell them what's going on. Most of the time, they will be glad to work with you to come up with a new payment plan that will make it easier for you to pay your monthly bills. It might mean extending the length of your loan or renegotiating the terms of a loan agreement, but it will ease the pressure and save your credit rating in the long run.
3. Pay off your loans with the highest interest first.
You can choose which loan or credit card payment to make. Most of the time, it's not a good idea to pay only the minimum on credit cards, revolving loans, and lines of credit. However, there is one case where this is a good idea. If you have one or two loans with high interest rates, one of the best ways to get a handle on your debt is to pay them off as soon as you can. If you make the minimum payments on your other debts for a few months, you can focus on paying off your most expensive loans.
4. Move your balances to loans and lines of credit with lower rates of interest.
If you owe money on loans and credit cards with high interest rates, you can help your finances by moving the balances to a credit card with a lower interest rate. Credit cards with introductory rates of 0% for six to twelve months are easy to find right now, as are balance transfers with low interest rates. Use one to move a loan with a high interest rate and pay it down during the first few months.
5. Get a debt consolidation loan.
If you have several debts with different interest rates, it makes sense to get a loan to pay off all of them at once. By getting a home equity loan, second mortgage, or other secured loan for the total amount of your debt, you can pay off all your other debts and only have to worry about one monthly payment. By consolidating your debt with a home equity loan, you can take advantage of a longer payment term and lower interest rates to lower your monthly payment and free up money for savings and other investments.
