Loan Debt Problems

Someone who has too many loans without enough income can soon find themselves with serious debt problems. Once on the slippery slope of having too much debt, it can be hard to climb back up. However, there are solutions and options available to help people who find themselves in this predicament. It may take time and test your patience, but following some standard steps can help resolve loan debt problems.

Identify Problem

To identify a problem, you need to figure out how you ended up there in the first place. If you were careless and racked up too many unnecessary loans, then you need to halt this practice. You must be vigilant with your money which means accessing your credit line to pay for unnecessary high-ticket items -- such as a new television -- may only plunge you deeper into debt.

Budgeting

To help get you out of the seemingly never-ending hold of debt, the first step you need to take is to create a monthly household budget. That means comparing your income to your expenses. When your expenses exceed your income, you are putting yourself in debt. Think of your budget like a business -- to make a profit, you must spend less than what you bring in. Cut your expenses, such as entertainment or groceries, to make a "profit" at the end of the month. Use your surplus to pay off your loans.

The Avalanche Method

A common debt reduction strategy is compiling all of your debt in order from highest interest rate to lowest and then paying it off in that order. This is called the avalanche method -- starting from the top and moving down, like an avalanche. In essence, you are paying off the loans with the highest interest rate, saving you money. When you have paid off your first loan, you move on to the one with the next highest interest rate.

The Snowball Method

The snowball method of debt repayment is useful to gain momentum and confidence in paying off your loans. You start with your lowest outstanding balance -- regardless of interest rate -- and pay it off. Then, you move on to your next lowest and pay it off. You continue in this manner until you reach your highest. Like a snowball, you start small with more manageable debts and, once rolling, get bigger as time goes on.