At some point, you may accrue massive debt due to the rising cost of living or costly expenses such as moving to a new home or taking your kids to school. Failing to pay your loans on time or poor financial management can also lead to debt accrual, and dealing with this issue can be stressful.
Fortunately, there are several tips that you can use to get out of this situation. This article highlights tips to help you overcome a huge debt.
Consolidate Your Debts
Another method that can help you overcome a huge debt is consolidation. Debt consolidation means you get a low-interest loan from another source and offset all your debts.
There are several ways you can use to consolidate your debts. One of the effective ways is through a home equity loan. A home equity loan refers to borrowing money from a bank or any financial institution, using your home’s equity as collateral. You can also consider moving your debt to a balance transfer card, especially if you have credit card debt.
Eliminating high-interest debt with a home equity loan is one of the best options since most financial institutions allow longer loan terms. Also, the monthly payments are quite low.
Try the Snowballing Method
If you have several debts, try the snowballing method. Here, you’ll start by listing down all your debts from the smallest to the largest. Next, pay off all the small debts first as you make a minimum payment to the rest. Repeat this process until you clear your debts.
For instance, if you have a $2,000 credit card balance, $1,000 car loan balance, and $10,000 student loan debt, you’ll start by clearing the car loan as you pay the minimum required amount to your credit card and student loan.
The main advantage of using the snowballing method to pay off your debts is that it will help you focus on one debt at a time and avoid confusion. Also, this method is fast, motivating you to keep pushing until you clear your debts.
Create a Budget
The first step towards overcoming a large debt is creating a budget. Write down all your regular expenses and allocate the money you wish to spend on each of them, depending on your total income.
After creating a budget, you can easily spot areas you are spending more than you should and cut down the expenses. Use the extra money to pay off your debt and avoid financial issues.
When cutting your expenses, you need to be careful to avoid affecting your quality of life. It’s essential to strike a balance between a tight budget and livability.
Negotiate for Lower Interest Rates
When most options refuse to work, and you start feeling overwhelmed, negotiate for lower interest rates with the creditors. Lower interest rates can stop your debt from accumulating too much, making it easier to pay. Also, you can save some money and use it to pay other creditors.
Although approaching your creditors can seem scary, gather the courage and face them. You’ll be surprised to discover that most financial institutions are willing to lower your interest rates, especially if you were a loyal customer before.
You can choose to call them or arrange for a face-to-face meeting. The latter is better since it helps you better explain yourself and convince the creditors.
Make Extra Income
Making extra income can be the best option to overcome a large debt. Sometimes, the money you make can’t be enough to offset your debts despite your efforts, like cutting your expenditures or negotiating for lower interest rates.
Consider taking up a second job to get some extra cash. However, if it seems exhausting, put some of your additional skills into use. Try working as a freelance website developer for businesses or a coder. Additionally, you can start selling thrift clothes online or start the AirBnB business.
Parting Shot
Dealing with a huge debt can be overwhelming and may affect your mental health. Use any tips above to clear your debt and achieve financial freedom. If it seems challenging, look for a credit counselor to tell you the best way to get out of this situation.