The advice probably seems never-ending regarding the best debt reduction techniques, but it's important to consider every angle before deciding upon a strategy to reduce your balances.
Until bankruptcy becomes necessary, paying attention to your finances and figuring out ways to keep the bills paid and the debts down is a valuable investment of your time.
It might feel like ignoring mounting debt is the only way you can deal with it, but deep familiarity with your debts, balances, and interest rates is helpful whether you decide on a long-term debt payment plan or decide that bankruptcy might be your best option.
Choosing a Payment Plan
Debt Reduction Takes Some Creativity
Financial guru Dave Ramsey popularized the phrase "debt snowball" in 2009 when millions of people saw their credit card balances rise due to the recession, unemployment, and general financial malaise. Since that time, his plan has maintained popularity.
Simply put, the debt snowball plan suggests paying down one debt at a time (usually credit cards) while making minimum payments on absolutely everything else.
Ramsey's suggestion comes from the following belief:
The principle is to stop everything except minimum payments and focus on one thing at a time. Otherwise, nothing gets accomplished because all your effort is diluted.
And this makes sense, if you think about it. If you make minimum payments on everything, or even payments that are $10 or $20 above the minimum on each of your credit cards, those balances are going to fester and feel stagnant for years.
On the other hand, choosing one account to put all your debt-paying energy into, helps you clear away one debt at a time and receive a confidence boost each time you hit a zero balance on one of your debts.
Debt Still a Problem for Americans
At the height of the recession, average debt for Americans reached close to $19,000, according to savings advice website Mint.com. Just a few months later that average dropped down to $15,000, but it hasn't gone down that much despite the ongoing recovery and the official end of the recession.
Unfortunately, initial debt reduction numbers stemmed from the actions of banks, which cancelled credit cards and loans en-masse so as to write off bad debts and get their own finances back in the "black."
Despite these major write-offs, many Americans remain tied to huge credit card payments and interest rates that put a chokehold on a family's ability to invest and save for its future.
Mint offers some simple, yet sage advice regarding debt reduction:
Just because you have credit cards, doesn’t mean you have to use them. Take those annoying things and lock them away.
It's important to pay with cash as much as possible so you don't add to your debt load. Financial circumstances might make this feel difficult, but it's essential to make the hard choices and sacrifices to get rid of debt.
Weed Through the False Promises
With so many Americans battling huge credit card balances and unpaid loans, unscrupulous companies have sprung up to take advantage of desperation over debt. Before embarking on any journey for debt reduction, make sure you investigate any companies with which you make arrangements.
The Federal Trade Commission (FTC) says that debt relief service scams commonly target families and consumers who have high credit card debts. Unfortunately, the promises of negotiation and debt reduction aren't always the truth.
And the false claims don't stop with credit card reduction. The FTC also says:
Auto loan modification scams falsely promise that they can reduce consumers' monthly car loan or lease payments to help them avoid repossession.
Don't get taken to the cleaners by false promises. Make sure any debt reduction companies you contact are rated highly by the Better Business Bureau and don't have any lawsuits or complaints lodged against them for improper conduct.
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