An analysis of Federal Reserve data projected that by the end of 2018, the total consumer debt in the US will reach $4 trillion.
Americans spend at least 10% of their monthly income repaying debts like credit cards, student loans and car loans, and they basically owe 26% of their total income. These numbers are alarming and studies show that a lack of financial literacy is what’s causing Americans to amass such huge debt.
But the good thing about debt problem is, it can always be solved, and the New Year is the best time to kickstart your journey to being debt-free. Here are three smart ways to consolidate your debt and get rid of them for good:
Apply for a debt consolidation loan
One of the best options for consolidating debts is by taking out a debt consolidation loan where you can consolidate all your smaller loans into one large loan that you can repay with one fixed monthly payment. This method helps reduce the amount of your monthly repayments due to lower interest rates. It also locks down the interest rate of your smaller loans so they don’t accumulate over time.
The first thing to do when applying for a debt consolidation loan is to make a list of all the debt you have including their interest rates and monthly payments. Once you have a total amount, compare them against your monthly budget to see if you can really afford to make those monthly payments or not. A lot of people don’t see this until they sit down and list everything. By seeing a clear picture of what you owe, you can decide if you need a debt consolidation loan or not.
Lenders usually give you between three to five years to repay your loan and interest rates can be negotiated with them. To qualify for a debt consolidation loan, lenders usually look at your credit score, salary and financial status to see if you are capable of repaying the loan or not. Once you get approved, you will be released a loan that’s large enough to pay most if not all your unsecured debt at one time.
Join a debt management program
If you are not qualified to take out a debt consolidation loan or you’re just not ready to apply for one yet, you have the option to consolidate your debt through a debt management program. A lot of non-profit credit counselling agencies offers this option to help people get out of debt without taking out another loan. In this method, the agency usually works with the credit card company in reducing the interest rate of your debt and lower your monthly repayment to an amount that you can afford. Then, you will send an agreed amount to the agency each month, which will be distributed to your lenders. Some agencies can also negotiate to waive over-the limit and late fees to further lower your total debt.
Be smarter about your finances
Still, one of the smartest strategies to kicking off debt for good is to do better at managing your finances. Since you already know how much you owe each month, you can already make adjustments to your budget so you can afford those repayments. Then, you can start by reducing your expenses, sticking only to what you really need and skipping the shopping sprees. It’s also smart to pay more every month if you can.
Although these bills have a minimum payment, adding at least $20 to that repayment each month can already go a long way to bringing down your debt. Before you know it, you’ve already repaid everything in a shorter time.
If there is one resolution that you should make andkeep for 2019, it should definitely be financial responsibility. Whether you only have a small debt to pay or you’re already drowning in loan repayments, the best way to solve those problems is to do something about them now. So, stop ignoring those bills and start working on how you can get rid of them for good. It could be taking out a debt consolidation loan, joining a debt management program or being smarter about your money. The most important thing is to make that first step to being debt-free.