Whether you have just one overused credit card or several outstanding debts, it’s going to take several changes in how you manage money to get out of debt. Think of your debt reduction as a campaign. No one tool is going to do the job. It’s good to look at all the options you can to deal with your debt. The higher your debt, the more changes you are going to have to make. The more strategies you have in play, the higher your chances of success will be and the faster you will pay it off.
Here are some debt reduction strategies you can use to eliminate your debt, one step at a time. How far you will have to go will depend on how serious your financial condition has become.
Get Out Of Debt by Redirecting Your Cash Flow
Earn Extra Income
If it is possible, increase your family income and use the money to get out of debt. The key here is to use all of the added cash flow towards debt reduction. While this means a big time commitment, this option has the least impact on your lifestyle in terms of needs versus wants. If your debts are small, taking on a part time job for a few months to pay off that debt is a smart move. If your debts are large, this can help but you will need to do more.
Get Rid of Excess Assets
The next easiest way to raise some cash is to sell some assets that you don’t need or can do without. Have a yard sale, list items in an online site like Kijiji.
You might also want to make some tougher decisions about what you have. Sometimes what we own can actually cost money and prevent you from getting out of debt. You might be paying to store them or paying for upkeep. A second car, truck or even a boat for example might be a nice want, but do you need it? The extra cost in terms of insurance, maintenance and repairs might outweigh the fun of ownership.
Next look at your assets in terms of long term affordability. Do you have more home than you can afford or need? Are you driving a car that meets the needs of your neighbours more than it fits in with your personal financial situation? Consider downsizing. You will probably be happier with less debt than you will be with more assets.
Cut Back On Spending
Getting out of debt is only going to happen if you can find ways to pay more money towards the principal every month. That means looking for expense reductions for two reasons. First to stop adding to your debt if you are currently living beyond your means and second to generate excess cash flow that you can put towards debt reduction.
Get Interest Relief
Talk to Your Creditors
Your creditors have one objective; to be paid back. Yes they want to earn interest but if their options are between default or a change in the terms of the loan, they may be willing to work with you.
Ask them first to reduce your interest rate. If you are struggling with your monthly payments, ask for more time to pay. See if you can work out a payback plan that you can both live with. Take the initiative and make a proposal yourself based on what you think you can afford.
For this strategy to work, you will need to show that you can, and will, stick to the payment plan arranged. If you are far behind on your payments, your creditors will make catching up, and staying caught up, part of the deal. If you default again, the concessions you negotiate may be reversed as part of the terms of your agreement.
Look To Family and Friends
If your debt problems are a temporary setback, family and friends may be a good source of short term help. They may be willing to loan you the money to get out of high interest credit card debt, either interest free or for more reasonable terms. Be sure before you take this step however that you can pay them back. Borrowing from family should be a temporary solution, not an extra source of income.
Check Balance Transfers
You may be able to reduce your interest costs by transferring the balance on high interest debts to lower cost options. You may be able to transfer your credit card debt to a line of credit for example. Or you may look for a lower interest credit card than the one you have today. You will need to do the math to make sure you are saving money. Take a look at balance transfer fees and compare payment terms.
Also, if you are going to apply for new credit to find a lower rate card, stop using your old card. Any time you add to your credit capacity, you run the risk of increasing your overall debt.
Consider Debt Consolidation
A debt consolidation loan can help you get out of debt if it saves you money in the long term. Be sure you don’t eliminate any savings from a lower interest rate by extending the term to reduce your monthly payments. The longer you owe money, the more it costs you even if the rate is low.
Ask For An Interest Freeze
If you don’t qualify for a debt consolidation loan or can’t transfer your debt to a lower cost alternative, you may want to talk to a credit counsellor about a Debt Management Plan. While you will have to repay what you owe today (including accumulated interest), you can work out a repayment plan that freezes interest and penalties moving forward.
Get Out Of Debt Sooner with Debt Forgiveness
If you’ve done what you can to increase your income and cut back on expenses, but still don’t think you can pay back your debts in full, you may need to look at your legal options for debt forgiveness.
File a Consumer Proposal
A consumer proposal will help you lower your monthly payments and consolidate your debts. Your payments are significantly lower because you can arrange to settle your debts with your creditors for less than you owe. Interest is frozen and the unpaid portion of your debt is forgiven once you complete your proposal.
If you are unable to repay your debts, filing bankruptcy may be the only way to eliminate those debts and gain a new start. Upon filing your creditors are prevented from pursuing you any further and once your bankruptcy is completed your debts are discharged.
It’s not always easy to choose the right option to get out of debt. Our experts are here to help you choose the right debt reduction strategy that will work for you. Contact us today for a free no obligation consultation.