How to Reduce Loans

The best way to reduce your loans is to pay them off on time. Most borrowers intend to do this when they take debts, but circumstances can arise to make repayment challenging, if not impossible. If this is the case, the next best method is to apply debt reduction strategies to begin digging yourself out of debt. These strategies may include settlement, consolidation or modification. Each strategy has its downside, however. Be careful when you begin exploring debt reduction, keeping in mind creditors do not like to change the terms of contracts.

Instructions

1

Keep paying your debts. Even when you are attempting to modify or close a loan, you must maintain payments in order to avoid racking up additional financing fees. Do not stop payment unless you have been granted forbearance or have determined you will be entering default.

2

Research federal assistance programs. Often, these programs are the most affordable methods for reducing your debts. Programs are available for student loan consolidation, mortgage refinancing and foreclosure alternatives.

3

Contact your lender. Inform your lender you will be seeking loan modification in order to reduce your total debt. If your lender participates in federal programs you qualify for, such as the Home Affordable Modification Program for mortgages, the lender must consider your application.

4

Apply for modification directly with your lender first. You will need to provide income verification to show that circumstances have changed that will prevent you from meeting your current payments but will let you make adjusted payments after modification. The goal is to convince the lender it stands to benefit from your modification. If the lender knows you will default without modification, but you will be able to repay the loan if it is modified, the lender is more likely to work with you. Lenders will not often reduce your principal loan sum unless your property has decreased in value substantially. They will be more likely to reduce your interest rate and financing fees, which can still save you thousands of dollars.

5

Consider third-party modification. If your lender refuses your application to reduce your debt, you may want to work with a credit counseling service. These services often issue you a loan to pay off your existing debts. The counselor will work with your current lenders to negotiate a low payoff quote, reducing your total debt. However, the new debt may have high interest rates, and you will still need to repay this loan in order to truly reduce your debt.