Mastering Your Debts, Part 2

debt, loans near meThe key to mastering your debts in the New Year involves two things: paying down what you can and lowering what you pay on your debts. Together, these two things can help you get out of debt. Here’s how to make your debt go away using these two principles according to

1) Evaluate your debt. Take a look at the total amount you owe, how much you are paying in interest and fees on your debts, and how much of your paycheck goes towards your debts each month. This can be an eye-opener. Be especially vigilant about credit cards, unsecured loans, and payday cash advances – these unsecured debts have higher interest rates and may cost you more.

2) Create a budget and a plan for paying down your debt. How much can you afford to put towards your debt each month? Do the math: with that amount, how long will it take you to pay off all your loans? If the answer is “too long” you need a better plan. Come up with ways to bring in more cash (see our series about maximizing your income) and put your extra earnings towards your debt.

3) Tackle the highest interest rates first. Credit cards, payday loans, and signature loans have higher interest rates. It makes no sense to pay off your mortgage faster if you have these debts. Look at the highest interest rate you have and put all your extra cash into paying down that debt. Then move on to the next highest interest rate and so on.

4) Lower your interest rates. You don’t have to pay the full price of your debts. In many cases, you might be able to negotiate for better terms or a better rate. Read our guide on how to lower your credit card interest rates, for example. Talk to other lenders about slashing rates and fees – many lenders are willing to do this rather than risk losing you to a competitor. If this is not an option (because your credit is not perfect), consider consolidating your debts so that you pay less interest. Paying less interest means that more of your cash can go towards paying down the actual loan amount, and this can help you get out of debt much faster.

5) Remember your emergency fund. Even if you want to pay off your debts very quickly, you still need to pay yourself. Put aside money in your savings each month.

6) Avoid new debt. You knew that, though, didn’t you?

If you have a lot of debt but can afford to make some progress on it, you can likely pay off your personal loans near you and other debt. If you are having trouble making it financially from month to month, though, and are falling behind you may need more help. If you are relying on payday loans or are getting collection agency calls, you have likely missed some of the signs that your debt was getting out of control. There are still a few things you can do:

1) Focus on making more money and increasing your income so that you can invest the extra cash into your debt load.

2) Seek professional help. Your bank may have advisors who can help you set a budget and evaluate your options. There are also non-profit credit repair companies that may be able to help you. These companies can help you negotiate with lenders or can help you get a consolidation loan. Just be aware that these companies are not all the same. Some charge hefty fees and some are not as helpful as advertised. Research carefully, read all the fine print, and make sure that you understand what services you are getting. Do not sign up with a company if they will be doing things you could do for yourself.

3) Learn about bankruptcy. If you are really in debt and your ability to make money is affected by illness or some other problem, bankruptcy is a chance to start over. It can be a way to get a fresh start if you truly cannot pay your debt, but it will affect your credit score for some time, so think carefully.

4) Read our credit repair guide for more great tips.

A big debt can be scary but there is a solution for just about everyone out there. Be persistent, know your options and you, too, can get out of debt.

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