Building a budget is the first step in taking control of your finances. Once you understand where your money is going you can begin to make different choices with it. Depending on the outstanding amount of debt you have and the available surplus cash, you can determine how long your repayment will take. The more money you have to apply for the repayment the sooner you can be debt free. The debt snowball is the standard for paying off your debt. Attacking the lowest balance first and rolling that over to the next debt once the first is paid off. Cutting lifestyle, selling material items, take on extra work are all ways to help generate extra money to increase the size of your debt snowball. There are other ways to gain extra traction on your debt repayment other than the techniques mentioned above. You can try and negotiate with your creditors yourself or research two programs out there, which may help you pay down your debt, the Debt Management Program (DMP) and the Debt Settlement program. All three may offer different levels of debt relief.
Contacting your creditors is a good first step. Explaining to them your situation and asking for a modification to your payment plan or interest rate is reasonable. The worst they can say is no. Be persistent, don’t allow a single phone call or a single no to keep you from your goal.
Debt Management Program
The DMP is basically an assistant program offered by an agency most banks or credit unions have associations with reputable ones. Some will waive their fees if you go through your bank or credit union. The agency will work with your creditors to reduce the interest rate on your accounts and work out a repayment plan in 3-5 years. You, in turn, send your money to the agency and they paid your creditors. With the reduction in interest rate, you can pay down your debt faster, applying more money to your principal balance each month. They key here is this is typically done with no additional income. You may be required to take some credit counseling. It may appear on your credit report that you are being assisted, but your accounts are paid on time and there is be on ill effect on your credit report.
The Debt Settlement program is offered by an agency that will negotiate with your creditors to reduce your overall debt by a percentage. How much may vary on how well they can negotiate, their claim is up to 60%. You must pay the creditor back in a lump sum. You will pay the agency a monthly payment and they will build it in a fund until you have enough to pay off the first creditor. The process will be repeated for each. The downside is that as they build that fund for the lump sum payment, you are not making your regularly scheduled monthly payment and that is reported on your credit report. The agency also charges you a fee in some cases 15% of your debt settlement. They will also work out a 3-5 year repayment plan.
These are some of the options available to you while working through your debt repayment. The Federal Trade Commission has additional details about these programs on their website and they can be found here.
What successful techniques have you used to pay off debt?