Debt is a four-letter word, but it can scare off people, corporations, and even some countries. Normally, we are always taught to get rid of debt because it is considered to be a negative thing. But what a lot of people don’t understand is that there are bad debts and then there are some good debts and it is worth differentiating between the two. Not to mention the different effects both of these can have on your balance sheet. It is very important that individuals choose which credit opportunities to utilize wisely. If they are not selected carefully, there is a high chance that people will end up looking for agencies that specialize in debt relief and debt consolidation. If you are one of those people that has become a victim to high-interest credit card debt, then continue reading on about smart ways to cope with high-interest debts. To begin we will evaluate the following debt-relief options:
- The Avalanche Method: Sometimes, people take on a lot of personal loans or open up a significant amount of credit cards, which can inevitably become a large chunk of debt that drains your monthly income due to high interest rates. During this time, it is wise to pay off some of your debt to create some balance and decrease your debt utilization. In the Debt Avalanche method, the borrower is advised to pay off his/her debt by attacking the highest interest rate account first and by allocating all extra funds from his/her money into one debt until it is paid off. If a person has taken multiple loans, then it is required to pay the minimum installment prices on other loans as well, but the main focus must be on the loan with the highest interest rate. So with this method you must still make all your minimum payments and then use whatever extra income you have to aggressively pay down the highest interest rate balance.
- The Snowball Method: Another smart method to help cope with the high-interest debts is to start paying your debts that have the smallest balance first. This snowball method is the reverse of the avalanche method and has been quite popular among people because paying off the lowest balance first is a very attainable goal and keep people motivated to pay off their debts sooner rather than later. Moreover, this method allows individuals to completely eliminate the balance on their accounts and will therefore lower the total amount of payments they have to make on their credit cards or unsecured loans.
- Debt Consolidation: Debt consolidation is considered to be one of the best strategies to cope with high-interest rates and overwhelming debt. With this widespread technique, a person or an entity takes out a large debt to repay the existing loans and debts they currently have and therefore merges all the debts into one account. It is a kind of refinancing, which makes payments on your obligations much easier to handle and allows for concrete repayment period. In debt consolidation, a person must show his/her qualifications to pay off their existing loans and credit card accounts, otherwise the consolidation option may not get approved. With this strategy, people can pay off all their debts including the high-interest debts and low-interest debts and in return, they will only have one debt payment to make each month. This will allow for significantly more breathing room on your obligations and will typically save you more money on interest payments. If you have been under pressure regarding debt repayment, this may be a suitable option to help you become debt free. However, this option is typically not easy to qualify for and it will have you make a larger monthly payment than your required minimum payments.
- Debt Relief Programs: There are times when you take out a loan and plan to repay it by the end of the year, but things don’t always go as planned. Through mishaps, people can get behind on their payments, while this is happening, interest payments will still be accruing on your balances. In those situations, there are agencies that offer debt relief programs for which you can pay off a lesser amount of money than what you actually owe to your lenders. Debt relief programs can be an extremely useful tool in helping you achieve financial freedom; however, you will usually be required to close out all of your accounts and this option will negatively impact your credit worthiness in the short term. With all that being said, this option is very cost-effective and if you are struggling to make progress on your obligations it may be the best option to help you get a better hold on your financial situation.
Whichever ever option you chose to utilize is completely up to you. Every individual case is different and some of these tactics may be best suited for different individuals. Regardless, it is always in your best interest to gather as much information as possible and reach whichever option you plan on selecting.