Debt can be discouraging. Even if you are able to keep up with monthly payments, it is common to feel like you will never be debt-free. If you are not able to fulfill your obligations to your accounts, it can be frustrating and extremely stressful. Below are 5 ways to address your debt:
1. Pay off high interest debt
When you have debts with high interests, it can take years to pay it off especially if you are only making minimum payments per month. This is because the amount you are paying is largely going to the interest and not the principal.
If you have many different debts, it is recommended that you pay off the ones with the highest interest first. If possible, try to pay as much as possible above the minimum amount. That way more is going towards the actual amount and not just the interest. Paying high interest debts off means that you can then move on to paying the next debt off, bringing you one step closer to being debt-free.
2. Counselling
Many people in debt are good about making payments per month as scheduled. However sometimes this is not enough to accurately address a debt problem and people will take on more debt when they cannot even handle the ones they have. If this sounds familiar, you should look at participating in credit counselling.
Credit counselling is the process of meeting with a professional who can have a look at all of your outstanding debts and compose a plan to tackle them. Strategies can include education, budgeting, and planning on what debt to address first. In doing so, a person can reduce and eliminate their debts far sooner than if they attempted to do so on their own.
3. Consolidation
Having many different debts means multiple payment obligations at different interest rates. This often equals financial difficulties when you could realistically be paying down debt in a way that does not leave you short through debt consolidation.
The process of debt consolidation involves bringing all eligible debts under one account. This means that you have one monthly payment to make and the interest rate is often lower than loans or credit cards that can range anywhere from 9 to 29 percent. Consequently, you will be freeing up money to go towards other things and you can rest assured that the one monthly payment you make will be put towards the principal amount of the debt.
4. Proposals
Sometimes people get into a situation where they are not able to keep up with their debts but are not to the point where they need to file for bankruptcy. In this instance, consumer proposals would be appropriate.
A consumer proposal is the process of meeting with a trustee who contacts creditors on your behalf. He/she tries to make a deal with the creditor that requires you to pay a percentage of the outstanding debt. If accepted the creditor is not legally able to contact you for the remaining amount. While a consumer proposal will stay on your credit score for 6 years, you can pay the agreed amount and then work on repairing your rating.
5. Bankruptcy
Bankruptcy is considered the last resort action for most if not all people. It is not a process you ever want to consider but if you are definitely unable to keep up with debt payments then you may have to consider it.
Bankruptcy means the liquidation of your assets to be able to pay creditors back save for belongings such as houses, personal belongings and vehicles. Filing for bankruptcy means an automatic stay is implemented, preventing creditors from contacting you for any outstanding amounts. Depending on what type of bankruptcy you file, it can stay on your credit score for 7 to 10 years. However, it will give you a fresh financial start where you can rebuild your credit and look forward to a good credit score after this time period.
