Once your debt situation spirals out of your control, it gets harder with time to rescue yourself. Your credit score takes a beating, and the process can be overwhelming if you don’t know how to get out of debt.
A few thoughtful strategies can reduce your stress and allow faster pay-offs. Let’s find out what they are:
Know What You Owe
Before you take steps to get out of debt, know exactly how much money you owe. So, make a list of debts, including mortgages, student loans, car loans, credit card debts, etc. Check the credit reports for accuracy and recorded debts. Also, note down the interest rates on loans and minimum monthly payments on credit cards.
Total the minimum amount to be paid every month to stay current on your debts. You may even calculate your debt to income ratio to tell you exactly how much you owe and what it will take to escape the debt trap.
Reduce the Interest Rates
Before you grasp how to get out of high-interest loans, understand that it is a race that you can’t win as you run in circles around your debts. If you owe more than you can handle and interest is piling up, you may not get a chance to pay off the principal. Here’s what you can do, instead:
- Ask for a Lower Interest on Your Credit Card– If you have a good repayment history and missed only a few payments, you can use it as a bargaining chip and ask the creditor to reduce your interest rates.
- Consider Balance Transfer– In this case, your credit card company will allow you a balance transfer from one credit card to another one at 0% interest for a specific period. It may involve a small transfer fee, though.
- Take a Debt Consolidation Loan– You can restructure and consolidate your debts into one affordable monthly loan. You can also find a company that buys out title loans.
Pay More and Pay on Time
A big chunk of your monthly payments goes to interest. Hence, you can increase the number of repayments to pay off your high-interest loans. You may also succeed by tackling smaller debts first to free your money to put toward the high-interest ones.
Once you plan this, make your payments on time every month. You may set up automatic payments or reminders through your bank so that you won’t miss any installment.
Earn More and Spend Less
If you want to know how to get out of a high-interest loan without the temptation of adding more debts, be diligent with your earning and spending habits. You may amplify your earnings with a side gig or a seasonal part-time job. Use your skills to earn extra and use this money to pay off your loans.
However, earning more isn’t all. Also, try to reduce your spending and live on a tight budget. Avoid extra expenses like unwanted shopping, eating out, smoking, clubbing, or even your cable television. Combined, these savings alone can add around an extra $100 toward your monthly debt payments.
Despite these strategies, you may find it hard to know how to get out of high-interest loans. That’s where professional advisory can help you find a debt management plan to restructure your loans and negotiate with creditors for affordable interest rates.