“Pay off your debt first. Freedom from debt is worth more than any amount you can earn.”
Do you have debts to pay off?
If yes, you might be worried thinking about how to pay them off. And why not? Carrying debts means you need to sacrifice a substantial part of your paycheck to repay your debts.
By the way, do you know the worst part of having debts?
Yes, you have guessed it right.
It’s the hefty interest payment that you need to make every month.
And if you have unsecured debts like payday loans and credit cards, then your situation might be worse due to its incessantly high-interest rates.
Well, you don’t need to worry! Here, we are going to discuss some smart moves that can help you repay payday loans and other debts without any hassles.
Let’s start one by one.
1. Assess your debts
The stepping stone to repay your debts is to know where you stand at present. Collect all the information about your debts like the remaining outstanding balances, amounts that you have already paid off, etc. Then, try to find out the reason that made you fall prey to this debt trap.
If you can’t find out the root of the problem, you may fall prey to the debt trap once again! So, you need to analyze your financial behavior and change your habits so that you don’t rack up debt easily.
Also, replan your budget so that you can set aside more funds and use them to repay debts. For that, you need to stretch your budget and cut down your expenses, as much as possible, to save more.
2. Convert your multiple debts into one
Are you exhausted from handling your multiple debts? What if you get a chance to bundle your multiple payments into a single monthly payment?
Yes, I am talking about debt consolidation. You can consolidate your multiple debts by opting for a balance transfer method or by taking out a personal loan. By doing so, you can pay off your multiple debts through single monthly payments. You can save money on your interest payments too!
Balance transfer method:
With this method, you can transfer all your high-interest payday loans to a new credit card with a much lower interest rate.
Many companies offer balance transfer cards with a 0% or very low-interest rate for an introductory period ranging from about 12 to 18 months. After the introductory period ends, creditors levy a fixed interest rate or a variable interest rate.
If you can pay off the new card within this introductory period, you can save a lot of money on interest payments. After that, you have to shell out money on interest payments.
However, you may have to pay a balance transfer fee which is about 3% to 5% of the amount transferred. Please read the terms and conditions of the balance transfer card carefully while opting for it.
You can take out a personal loan to consolidate your multiple debts into a single monthly payment. Besides, you can save money on interest payments as the interest rate on a personal loan is usually much lower than on payday loans.
So, you can make single monthly payments for your multiple unsecured debts and with reduced interest rates. Moreover, opting for a debt consolidation loan can help you to repay your debts over a longer period than your existing ones.
However, if you opt for a longer repayment period, you may end up paying off much more. So, manage your debt consolidation loan properly and always make payments on time.
Remember, in both the balance transfer method and debt consolidation loan, you need to have a decent credit score to qualify and get preferable interest rates.
3. Keep in mind about your credit score
A credit score is one of the important parameters of a good financial life. That’s why you should try to maintain a good credit score. You may come across a prevalent misconception that paying off your debt improves your credit score instantly!
But let me tell you, it doesn’t!
When you pay off your credit card debt, your credit utilization ratio is likely to reduce. And thereby, it can help to improve your credit score.
However, when you close these credit accounts, it results in a drop in your credit score temporarily. You can keep these credit accounts open. However, you may have to shell out annual fees to keep your account active.
So, paying off debts doesn’t improve your credit score instantly. Hopefully, you will notice an increase in your credit score with time.
If you opt for debt consolidation, it can help to improve your credit score as you will be paying off your outstanding balance amount in full. Eventually, your creditors will mark those debts as “Paid in full” in your credit report. This will leave a positive impact on your credit report.
However, opting for debt settlement and bankruptcy can have an adverse effect on your credit report. According to FICO, if you have a decent credit score of 700 and above, filing for bankruptcy can reduce your credit score by about 200 points!
Whereas opting for a debt settlement can reduce your credit score by about 100 points. The reason being, once your debt settlement is successful, your creditors will mark those debts as “Paid as settled”.
Still, I would say that it’s always better to get rid of debt by choosing the best debt relief option and lead a debt-free life. Opting for settlement or bankruptcy can take a toll on your credit score. But after getting debt-free, you can use your credit responsibly to build your credit score with time.
4. Want to repay debt fast?
If you can’t pay off your entire outstanding balance amount, it’s better to talk to your creditors or collectors. So, have proper communication with them and find out if they are willing to negotiate.
Please explain your financial situation and why you are unable to pay off the outstanding balance amount in full. And start the negotiation process by offering 30% of your current outstanding balance. Also, let them know whether you are going to make a lump sum payment or want a repayment plan to settle your debts.
Whatever is the case, don’t agree to pay off any amount that you can’t afford.
Lastly, have patience as the debt settlement process can take some time. You need to be polite and explain your financial hardship in a well-mannered way.
Otherwise, you can take the help of a professional payday loan debt settlement company to help you with your debts.
5. Want to start afresh? Think of bankruptcy!
If you are up to your neck in debt and not finding a way out of this debt trap, you can file for bankruptcy. It is often considered as the last resort to get rid of debts and help people to get a fresh start.
Once you file for bankruptcy, the court issues an automatic stay. It helps you get rid of collection calls, wage garnishment, and lawsuits as well! The 2 types of consumer bankruptcy are:
Chapter 7 bankruptcy
It is considered liquidation bankruptcy as it helps you to discharge most of your unsecured debts.
To be eligible for filing for Chapter 7 bankruptcy, you shouldn’t have got a bankruptcy discharge in the last 8 years. And you need to pass a means test to make sure that you can afford to repay a part of your debt obligations.
In the means test, your household income is compared to the median income of your state. Your expenses are compared to the IRS Local Standards. If you pass the means test, you can qualify for filing Chapter 7 bankruptcy.
In this bankruptcy, the court appoints a trustee to sell off your non-exempt assets like cars, valuable artwork, jewelry, etc. The funds generated from the sale of those assets will be used to pay off your creditors. Any remaining balance that you owe will be eliminated once the bankruptcy is discharged.
Remember, an automatic stay in bankruptcy can stop the foreclosure of your home. But filing for Chapter 7 bankruptcy won’t help you to retain the property.
Besides, your Chapter 7 bankruptcy information will stay for about 10 years on your credit report.
Chapter 13 Bankruptcy:
Unlike Chapter 7 bankruptcy, filing for Chapter 13 bankruptcy allows you to keep your property. You need to propose a repayment plan of 3 to 5 years to the bankruptcy court and your creditors. Besides, you will have to prove to the court that you can afford to maintain your household expenses along with making payments as per your repayment plan.
Once the repayment plan is approved by the court, you have to repay a part or all of your debt within the stipulated time. After making payments based on the repayment plan, your debts will be discharged.
With Chapter 13 bankruptcy, you might be able to retain some of your assets. Because in this bankruptcy, the trustee won’t sell your non-exempt assets. You will pay the value of any non-exempt property to your creditors through your repayment plan.
Besides, Chapter 13 bankruptcy stays on your credit report for up to 7 years.
Undoubtedly, filing for bankruptcy can help you to get rid of your debts and start your financial life afresh.
But it can take a heavy toll on your credit score and you can end up losing your assets.
6. Want to start afresh? Think of bankruptcy!
Negotiating with creditors can be a difficult task as most likely, you don’t have experience regarding it. Besides, it can take a considerable amount of time to negotiate with your creditors. You need to be patient as well.
Moreover, the monthly payments for your debts can make you more exhausted. So, in this situation, I would suggest you talk to a professional who can help you to pay off debts with ease.
7. Look for a reliable debt relief company
A genuine and reliable debt relief company can help you to pay off your debts with ease and guide you through the entire process. The financial experts of the debt relief company will analyze your financial situation and debt amounts as well. Based on that, they will suggest the best debt relief option for you, like:
Debt consolidation program:
The financial experts of the debt relief company negotiate with your creditors to reduce the high-interest rates of your debts. Once your creditors agree, you can make a single monthly payment to the debt relief company. In turn, they will distribute the money among your creditors based on the amount you owe.
Thereby, you don’t have to make multiple payments for your debts. You can save money on your interest payments as well.
Besides, you can notice an improvement in your credit score as you are likely to make payments on time and in full.
And once you have completed paying off your debts, the creditors will mark those debts as “paid in full”. Thereby, your credit score is likely to improve with time.
So, opting for the debt consolidation program will help you to pay off your debts with ease and without any hassles!
Debt Settlement Program:
The experts of the debt relief company will try to negotiate with your creditors to reduce the outstanding balance amount and waive off any late fees, penalties, etc.
Once your creditors agree, you can make a single monthly payment to the debt relief company. Your payments will be deposited into a trust account. Once you accumulate the settled amount in that trust account, the company will pay off your creditors in a lump sum amount.
However, opting for a debt settlement program can drop your credit score a bit as the creditors mark your debts as “paid as settled”.
Still, I would say that settling your debt is way better than paying nothing! Not paying off your debts can have some serious consequences like wage garnishment in your life.
So, enrolling in a debt relief company can certainly help you to pay off your debts without any hassles. Because all your debt related problems will be taken care of by the debt relief company.
However, make sure you are approaching a genuine and reliable debt relief company, preferably accredited by the Better Business Bureau. You have to pay charges to the company for opting for their professional services. So, talk to them about their fees before you opt for a debt relief program.
Hopefully, these 7 smart suggestions can help you to repay your debt without any hassles. Also, I hope that you become a debt-free person soon! Once you become debt-free, start working on your financial goals. And try to organize finances in such a way that you don’t need urgent money easily.
What do you say? Let us know your feedback in the comments section!