Having unmanageable debt can be expensive and reduce available funds for other expenses. Multiple debts can make it hard to keep track of the various monthly payments. This can result in lost time spent monitoring each debt and potential late fees for accidentally missed payments. Fortunately, borrowers can use several tactics and strategies to pay off what they owe and ultimately reduce the expense of carrying debt. This article will dive into four ways borrowers can manage and eliminate debt more easily.
1. Consolidate Debt with a Personal Loan
Personal loans can be an excellent tool for debt consolidation, or paying off several debts with one new debt. Consolidation makes it easier to track and make payments on one’s debts, reducing the chance of missing payments and incurring late fees.
Consolidating debt with a personal loan is like refinancing, which involves replacing old debt with new debt under more favorable terms. For instance, if someone uses a personal loan with a low interest rate to pay off two credit cards with higher APRs, they are refinancing the credit card debt. By consolidating and refinancing simultaneously, borrowers can simplify their debt payments and save on interest.
2. Use a Debt Payoff Strategy
Debt payoff strategies can help people create a plan for eliminating their debts. Here are two broad strategies to consider:
- Debt Snowball: This method involves paying off debts from smallest to largest in order of principal amounts. The individual pays the minimum on all debts except the smallest until they pay off the smallest, then repeats the process each time they pay off a debt.
- Debt Avalanche: This method involves paying off debts from the highest to lowest interest rates. The individual pays the minimum on all debts except those with the highest interest rate until they pay off that highest-rate debt, then repeats the process each time they pay off a debt.
The debt snowball method can work well for people who need a quick boost of motivation to get the debt payoff plan going. Meanwhile, the debt avalanche method may work better for people who want to save the most on interest.
3. Make a Budget and Slash Expenses
A budget can help a borrower track where their money goes every month. This allows them to see how much of their budget goes toward debt so they can create a more effective payoff plan.
A budget also helps people identify and cut expenses, making more funds available to reduce their debts. For instance, many people may have unused subscriptions they forgot about. Downgrading plans or canceling subscriptions can provide the borrower with more money to put toward eliminating debt each month.
Others may notice they spend more than they realize on entertainment or dining out. Scaling back spending in these areas temporarily can provide more funds for debt payoff. Borrowers can always increase their budgets in these discretionary categories later when they have less debt to worry about.
4. Negotiate Lower Interest Rates
If a borrower defaults on debt, the lender can lose money. Therefore, some lenders may be open to negotiating lower rates if it helps the borrower pay back their debts. This is especially true if a borrower displays a commitment to repaying that debt.
Borrowers looking to negotiate interest rates should research current interest rates to better understand what they could potentially negotiate for. During negotiations, they should highlight their strong payment history and credit history improvements and try to mention any lower-rate offers they received from other lenders.
Manage and Pay Down Debt More Effectively
Borrowers have many options for getting a better handle on their debt and paying it down. For instance, they can consider consolidating and refinancing with a personal loan to streamline debt management and reduce interest, or use a helpful payoff plan such as the debt snowball or debt avalanche method. Following these tips and tactics can help make reducing debt more attainable and may enable borrowers to reach financial stability.
