Consumers find themselves swimming in debt when they mismanage their finances or face sudden job loss. Sudden events such as losing a job or reductions in income are devastating for consumers. The issues lead to late payments and accounts going into collections. Some creditors may also charge off the account themselves, but the consumer remains responsible for the balance. Credit issues haunt consumers for years and make it difficult to make larger purchases such as securing housing. Efficient ways to reduce their debt volume could provide the account holders with fresh insight into how to recover from economic hardships and the unexpected.
Put All Accounts Together
Debt consolidation loans are the fastest way to put all debts together outside of filing for bankruptcy. The lender provides a loan amount according to what the consumer needs to pay off their debts, and the borrower uses the funds to pay off the original creditors. The strategy is beneficial for anyone who needs to gain better control over their existing debts and reduce the debts to one monthly payment.
However, traditional lenders require consumers to qualify based on credit scores and income. A higher-than-average debt-to-income ratio disqualifies consumers for larger debt consolidation loans, and this prevents them from getting the full benefit of the loan. Consumers need one loan to pay all the debts, lower interest rates, and make the payments affordable. Comparing loan amounts and products shows the consumer what lenders and loan options are best suited for their debt repair needs. Consumers find out more about debt consolidation loans over at Debthunch now.
Try a 3-Month Plan for Small Debts
Smaller debts present a better opportunity for the consumer to improve their credit scores and reduce debt. Setting up a plan to pay the debts over a three-month period helps the consumer eliminate each of their little balances and decrease their debt volume. However, when reviewing their debts and setting up a plan, it is paramount to address debts that reflect negative standings on their credit history first.
Negative listings include any debt that was charged off, in collections, or owned by a collection agency. When assessing their credit history, these debts appear under a different category for easier review. Starting with the account with the lowest balance helps the consumer get negative accounts paid off faster, and they won’t create an economic hardship. After they pay the account off, consumers submit a removal request to the current creditor and each credit bureau. Eliminating negative listings improves their credit scores and prevents denials of credit because of accounts in bad standing.
Add More As Your Income Increases
Getting a raise helps all individuals financially, but bump in pay may also make them spend unnecessarily. Financial advisors implore consumers to use the extra money every pay period to reduce their debt volume. The increase gives them more money to add to larger monthly payments for debts such as mortgages. Reviewing the total amount they’ll pay at the end of their mortgage shows the consumer how much they could save each year by adding extra money to each monthly payment.
In fact, doubling the payments could cut the time to pay off their home in half if the individual remains consistent with these increased payments. It gives the consumer a chance to pay more of the principle each month instead of paying mostly interest at the beginning of the loan. If you’re a Veteran, you can head to National Debt Relief where you’ll be met with a lot of options designed to help you with more tools and considerations. Debt is difficult, but there are many ways you can recover, and thrive. You just need to know your options and how you can protect yourself.
Compare Interest Rates for Credit Cards
Credit card interest rates help account holders determine how much they’ll spend by paying just the minimum payment each month. Comparing the interest rates for all their credit card accounts could show them a loophole for lowering their debt balance and paying off the accounts sooner. Transferring credit card balances according to what account the lowest interest has helps the consumer decrease their debt amount.
When they improve their credit scores, the consumer might receive offers for a new credit card that has 0% interest for the first six months or the first year. Using this account wisely helps them eliminate interest on other credit card accounts. If they can pay off the balance within the term, transferring other balances to the new account cuts down on interest payments and helps the account holder save incredibly.
Gift Cards Could Help You Budget
A novel idea for staying within a budget is to use gift cards for expenditures that aren’t necessary. For example, shopping trips stay within budget if the consumer has limited access to their bank account and their full wages for the pay period. Transferring just the amount they want to spend to a gift card cuts spending, and it prevents them from using money they need to save. Since the gift cards are refillable, they can use the gift card as many times as they choose.
Differentiating Between Good and Bad Debt
Financial advisors explain the difference between good and bad debt. All accounts in negative standing are bad debt, and these accounts are detrimental to the consumer’s credit. Getting rid of them improves the individual’s credit history and ratings. Good debt is any account that may have an existing balance, but they have a record of on-time payments, and they are in good standing with the creditor. The individual maintains their credit and higher credit scores by allowing the good debts to remain on their credit history as long as possible.
Consumers seek advice about reducing their debt volume and how to repair their credit once the damage is done. Tricks for maintaining credit without keeping negative listings improves their credit and prevents the impact of accounts that reflect poorly on the individual. Strategies start with debt consolidation loans when the loans lower interest and present affordable monthly payments. Chipping down smaller debts helps the consumer reduce their debt-to-income ratios. Increasing their monthly payments creates a safety net for mortgages and auto loans. Transferring credit card balances eliminate interest for up to one year. Reviewing each of these strategies educates consumers about how to recover from high volume debt.