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Saturday October 16, 2021

updated - October 16, 2021 Saturday EDT

How to Pay Down Debt

Sep 29, 2021 04:42 PM EDT | By David Thompson
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How to Pay Down Debt
(Photo : Image by Rilsonav from Pixabay )

It's everyone's goal to live their lives free of debt. For millions of Americans that seems like a completely unattainable dream.

The average citizen owes more than $52,000 to lenders; those debts include mortgages, credit cards, student loans, auto loans and other things. In fact, Americans owe more than $1.4 trillion in student loan debt and $995 billion in credit card debt.

Although that might seem like a daunting amount, some of the money owed is what's known as "good debt." That is debt to pay for something that could see a return investment, like a mortgage payment. Bad debt, on the other hand, is the result of borrowing for depreciating items, like a car loan.

The good news is that tackling the mountain of debt you have is a lot more intimidating than it sounds. There are simple steps you can take to finally get out from under it and you'll feel so much better once you get started.

Figure Out How Much Debt You Owe

 

The first step you must take is to figure out how much money you owe. Write down all of your current debt, including your mortgage, student loans, auto payments, and credit cards.

Next, you will want to look over a credit report and find out if you owe any outstanding payments. For example, did you default on hospital bills a few years ago? Or did you forget to pay that pet insurance premium you agreed to and it was sent to collections?

Contact any collection agency listed on your report. Ask the representative you're speaking to if they will agree to a settlement amount. Sometimes they will settle with you for as much as 50% of the original debt. This strategy could significantly decrease the amount of money you owe and you might be able to finally get it off of your credit report.

Speak to an Expert

After you figure out how much debt you owe, it's time to speak to an expert. Debt consultants can speak to you about the best ways to pay down your debt after looking at your unique situation.

These trained professionals help you devise a strategy to pay off your debts. For example, if you owe a lot of money in credit card debt, they might suggest a consolidation loan, HELOC loan, 401(k) loan, or some other solution.

Consolidation Loans

 

A consolidation loan is one of the most popular ways to get rid of high-interest debt spread across multiple payment platforms. A lender will give you a loan large enough to allow you to pay off all of those debts. Then, instead of having multiple payments with many different (and often higher) interest rates, you'll have one loan payment each month.

HELOC Loan

A HELOC, or home equity loan allows you to borrow money based on the amount of equity you have in your home. That's the difference between what your home is worth and what you owe the bank. For example, if you owe $70,000 to the bank but your house is worth $100,000, you have $30,000 in equity.

Sometimes people use these equity loans to pay off their debts and make home improvements.

401(k) Loan

Another way to pay off bad debt and get a lower interest rate is by taking money out of your 401(k). This is a short-term loan against your retirement that you can pay back on a flexible schedule. Also, it doesn't have an impact on your credit rating, an important factor when you're trying to pay down debt and get in a better financial position.

Just make sure your debt relief plan is going to work for you until you get it paid off. Do your research and look before you jump. 

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