Debt is a common but very nasty position to find yourself in. With the rising cost of living, it's easy to lose control of your spending and end up using your credit even when you can’t afford it. When you are in debt, the more likely you end up spending each month on interest payments.
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The best way to deal with debt is to pay it off as quickly as possible. When you are in debt, you might end up taking out a loan or ending up with more debt, whether it’s due to a mortgage, student loan, personal loan, or a credit card. But how can you tackle a lot of debt?
Use Your Savings
Generally speaking, it’s good sense to save your money. If your money is in a high interest savings account, it can appreciate in value. Also, you have a safety net in case something goes wrong and you have a sudden expense. Savings can prevent debts.
But what if you’re already in debt? In this case, it might be more beneficial to use your savings to pay off your debt right away. Most debt interest rates are higher than the interest rates on your savings.
This means that you end up losing money in the long-term, even if you have a savings account. Once you’re clear of debt, you can then focus on building up your savings. You can even start investing money for more potential dividends.
When You Are in Debt, Consolidate
If you have multiple small, but high interest debts draining your account, there is a great way to easily pay off those debts and lower the interest rate. By taking out a consolidation loan, you essentially transfer the debts to one debt.
This simplifies the process of paying off the debt, allowing you to better budget your money and focus it in one place. However, you often need decent credit to get the best deals on consolidation loans.
Snowballing
Another method is to focus on one debt at a time. This is usually either the smallest loan or the loan with the highest interest rate. By paying the minimum on all but one loan, you can wipe it out much more quickly.
Once one loan is gone, you can switch your focus on the next loan and work through the list. This can cut years off your debt repayments and save thousands, even on larger loans.
Budgeting
These methods all require setting a budget for spending, saving, and most importantly, paying off debts. The more you can pay off, the better you will be. So, set as frugal a budget as you can if you want to work through debt quickly and avoid taking on more debt.
Going to Court
If you are called into court due to outstanding loans or if your creditors are harassing you, you have a few options. The best idea is to contact a debt defense attorney who may be able to help you argue your case. If things go well for you, you might get a reprieve that gives you more time to pay off your loan.
