Solutions to Pay Off Debt

Pay Off Debt: Make a Plan and Do It!

No matter whether you are deeply in debt or just starting to get into debt, you should make a plan to pay off your debt. Being in debt is stressful. Putting together a plan to pay off debt reduces your stress and puts you on the path to financial security.

Here is a three-step plan to pay off debt:

1. List all your debts.
2. Chart out your assets and income.
3. Choose a debt reduction tactic.

The tactics you should use to pay off debt are different if you are in a strong financial position or if you are in a weak financial position.

Not all Debt is Bad: Healthy vs. Unhealthy Debt

Not all debt is bad. Loans and debt that help to increase your overall financial position are healthy debt. Mortgage loans and student loans are both examples of healthy debt.

Unhealthy debt allows you to live beyond your means, but it is like a time bomb. Once you get behind in payments, your immediate quick-fix solutions are expensive. If you are not careful, the debt cycle will lead you to default, lawsuits, and collection judgments. Credit card debt and payday loans are two examples of unhealthy debt.

Step 1: Chart Out Your Debt

Begin by making a list of your debts, separating healthy from unhealthy debt. Fill out a chart like this:

Step 2: Chart Out Your Sources for Repayment

Make a list of all your potential sources for repayment, including the following assets:

Make a list of your income, as follows:

In order to complete the picture, complete a full budget. Bills.com provides you with instructions on how to prepare and maintain a budget.

Step 3: Choose the Best Debt Reduction Tactics

Once you have a snapshot of your financial position, find the best tactic(s) to pay off your debt. Remember to keep in mind your short-term goals:

1. Pay off your loans quicker.
2. Consolidate your unsecured debt.
3. Reduce your stress.

Although a bit oversimplified, try to place yourself in one of the two categories: Strong or Weak financial position. No matter what your financial position is, you can find good tactics to help pay off debt. Always, budget and spend what you earn and can afford.

Plan A: Good Financial Position — You can afford your payments and Have strong assets

Choose between one of the following tactics:

• Accelerate your payments: If you have sufficient income, consider making larger payments on your debt. Make accelerated payments on your mortgage, either automatically each month, or through lump sum payments.
• Optimize your payments: Avoid making minimum payments on your credit card debt. Apply extra funds to pay off your highest interest or your lowest balance cards.
• Refinance your mortgage: If you have equity in your house, consider a refinance or a cash-out refinance. By reducing your interest rates, you will be saving on your financial costs. Be sure to check the bank fees. In order to pay your debts off faster, reduce the term of the loan. If you have 20 years left, consider taking a 15-year loan. Take a cash-out refinance to pay off other debt, such as credit card debt. However, plan the payments appropriately so that you do not increase your overall debt load. Avoid taking out new credit card debt.
• Take a personal loan to consolidate debt: If you have built up high interest loans or debt consider a personal loan to consolidate your debts. If your credit score and history are strong, then personal loans can be a good alternative to expensive credit card debt. A good place to start looking for a personal loan is with your bank or credit union. Shop around and make sure that by taking a personal loan you will be retiring at a lower interest rate and faster pace, unhealthy debt. If you have a number of student loans, then student loan consolidation is a good way to lower your interest rates, simplify your payment schedule, and shorten the payment term, so you pay off your debts for a lower total cost.

Plan B: Weak Financial Position — Cannot afford monthly payments and weak asset position

You are undoubtedly under stress and think that your options are limited. After all, you don't have any assets to pay off your debt, nor sufficient income to meet your minimum required payments. However, you can use some good debt relief tactics, including the following:

• Sign up for Credit Counseling and Debt Management: A credit counseling program will review your budget and financial situation with you. Your credit counselor may recommend that you enroll in a debt management program (DMP). You will enroll your credit card debt into the program and pay it off within a 4-5 year period. You make all your payments to one company that funnels the funds to your various creditors. You pay back 100% of your debts. In general, you need to stop using your credit cards for this approach to work. This type of program helps you pay off unhealthy debt and avoid late payments that would harm your credit history. You pay an upfront and monthly fee.
• Sign up for Debt Settlement: If you are deep in debt, especially credit card debt, then consider enrolling in a debt settlement program. You choose to stop sending payments to your creditors and send money, instead, to a bank account that is under your control. Once a successful agreement is reached, the creditor will be paid, usually for substantially less than the amount you originally owed, Make sure to hire only a settlement company that does not charge you a fee before an account is settled.
• File for Bankruptcy: If your financial picture is extremely bad, consider filing for bankruptcy. A chapter 13 bankruptcy is a form of paying off debt, with a court supervised payment schedule. Consult with an experienced bankruptcy lawyer, to see if filing bankruptcy will help you.

Summary: Putting Together a Plan to Pay Off Debt

Bills.com offers you more articles, advice and tools about the various tactics you can use to pay off debt. No matter what your financial situation, or which tactic you choose, it is up to you to make a plan and stick with it. Getting into debt is easier than getting out of debt. However, by following the three steps in the article, you can improve your financial situation and make your plan work.