Slideshow: 5 Options for Getting Out of Debt
Getting out of debt, especially credit card debt can be a very difficult task and the stress that goes along with it can be even more taxing. Credit card debt can lead to issues with relationships and family, and has even been known to cause depression. The average number of filings for bankruptcy by businesses and individuals over the past five years was 1.32 million per year. Luckily, there are several options that can lead to financial stability and a stress-free financial situation. There is not a one size fits all solution, so knowing which option works best for you is important.
DIY Debt Reduction
In this approach, you will target one of your debts to focus on eliminating. While paying the minimum payments on any other debt, you can focus the majority of your money on diminishing the one targeted bill. After each target debt is eliminated, you move onto the next target and so on until your debt is relieved. There are two main variations to this strategy: the “Debt Snowball” and the “Avalanche Approach.”
In the Debt Snowball, you will pay off the account with the smallest balance first. As you continue to knock off each small debt, you work your way up to the bigger ones. Hence, the debt snowball effect. The debt snowball is great for those just starting to use additional funds to focus on their debt relief. Sometimes large debts can be overwhelming to conquer, and gaining momentum with your debt snowball can motivate you towards your ultimate goal.
Adversely, the Avalanche Approach pays off the debt with the highest interest rate first. This is often times very smart to do, because this added interest can hinder you from making any real progress on any other debts. Once these are taken care of it may be easier to start chipping away at other burdens.
If you are able to consolidate your debts, you will get a new loan to pay off your other debts. This method works well for resolving credit card debt if you are able to significantly reduce your interest rates, and are able to pay off the new loan quickly (roughly within three years). It is important to stay loyal to this plan, and not return to the plastic, this will make your credit card debt even worse. Many people find combining consolidation with the debt snowball or the avalanche method extremely effective.
A respected credit counseling agency will typically review your budget and current financial situation for free. After this painless initial conversation, a certified credit counselor will develop a Debt Management Plan that will help you get out of debt faster. Your personalized Debt Management Plan may lead to the reduction of credit card debt, typically reduce interest rates, and the simplification of monthly payments. Your payments will be centralized into a single payment to the credit counseling agency, and they will distribute each payment to all of your creditors. Using credit counselors is a great way to access the knowledge and advice of experienced professionals.
Arranging a meeting with a credit counselor is a big first step in getting out of debt. With Advantage CCS, you can start your free credit counseling today by enrolling in our Online Credit Counseling service, by calling a representative at 1-866-699-2227 or stopping by in-person at one of our locations.