Excessive debt makes it difficult to meet your monthly financial obligations and save money for the future. Consumers accrue debt by taking out loans like mortgages, auto loans and personal loans as well as using credit cards. If you are burdened by high levels of debt, there are several strategies you can use to help manage and reduce your debt.
Aggressive Budgeting
One way to deal with excessive debt is to drastically alter your spending and living expenses so that you have more money left over each month to pay off debts. A budget is a detailed list of income and expenses; creating a budget is an important first step toward controlling spending. Getting rid of all unnecessary expenditures like fancy meals and clothing purchases and reducing other expenses such as utility costs and insurance costs can allow those in debt to pay off debts. If you have trouble resisting the temptation use of your credit cards, consider destroying the cards.
Refinancing and Consolidation
Debt refinancing and consolidation involve getting new loans to replace your current loans. When you refinance, you replace a single loan, such as a home mortgage, while debt consolidation replaces several small loans with one larger loan. Refinancing and consolidation can potentially reduce the amount of interest you owe on debt, which may make it easier to afford payments. Consolidation can decrease the chances of missing a payment since it reduces the total number of bills you pay.
Credit Counseling
Credit counseling is a process where a debtor receives advice from a financial professional about how to best overcome debt. Many credit counseling companies are nonprofits and work to help debtors solve financial problems through debt advice, budgeting assistance and providing other educational materials, according to the U.S. Federal Trade Commission. Credit counselors can help you create an individualized plan to pay back debt.
Bankruptcy
Bankruptcy is a method of last resort for dealing with excessive debt. Individuals can file bankruptcy under Chapter 7 of the U.S. Bankruptcy Code, which offers forgiveness of certain debts like credit card debt and personal loans. Bankruptcy has a long-lasting negative impact on your credit score, which can make it difficult to borrow money in the future.
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