The key to a secure financial life is to have as little debt as possible. If you take on too much, you will be doomed to spend a significant portion of your monthly earnings to pay it off over a period of time. According to a 2018 report by Northwest Mutual, the average American owes almost $38,000 in personal debt. If you are someone looking to get rid of this accumulated amount as soon as you can, follow the tips given below, and take the first steps toward a debt-free lifestyle.
Pay more to reduce debt
Loans only require you to pay a fixed amount every month. However, you don’t have to restrict your payments to such limits. Pay off as much as you can. If you have US$200 left after all expenses, use that money to pay off the loan. If you get a bonus of US$2,000, pay it toward the debt. If you get US$10,000 from a distant relative as a gift, use it to reduce your debt burden. In short, make it a habit to use all the extra money you make to pay off the loan balance.
Subscribe to our Newsletter!
Receive selected content straight into your inbox.
A good system to follow with regard to debt repayment is the Snowball Method. First, list out all the debts you owe, ranking them from the smallest to the largest. Every month, pay off the minimum amounts of the bigger debts. But when it comes to smaller ones, pay as much as you can. By following this tactic, all the small ones will be soon paid off, which allows you to pay more money monthly toward the bigger ones.
Get lower interest rates
If you are finding it difficult to pay off credit card debts, call the issuer and negotiate a lower interest rate. Asking for lower rates is actually pretty common. As such, you don’t have to worry about whether the credit card company would accept your request or not. In fact, many companies will be willing to reduce the rates if you have a good repayment history. In addition, there are several other bills that you can negotiate for a lower payment. Some individuals will be eligible to transfer their credit to another provider. They will be provided with offers, such as low interest rates or even no interest, for a certain period. Take advantage of such offers when you see them. Go to a competing provider and inquire whether you’re eligible.
Borrow against life insurance
If you have a life insurance policy that has been active for a long time, you can use it to pay off your debts. Remember that this strategy is only applicable in the case of whole life or universal life policies that build up a cash value. If you take out a loan from your insurance policy, you don’t even have to repay it. Just keep in mind that the insurance company will reduce the face amount of the policy by the loan amount when paying the claim to your beneficiaries.
Statute of limitations
Some people keep paying credit card debts that are 7 or 10 years old. While this is okay from a moral viewpoint, there might come a time when you are so starved for cash that you are unable to pay them anymore. In such situations, you should consider using the statute of limitations against the debts. Each state has its own rules that stipulate a time period within which the debt has to be collected and beyond which the debtor is under no legal obligation to repay their loan. For instance, if your state mandates that credit card debt can only be collected for a period of 8 years, but you’re still repaying it for far longer, you can legally get the repayment obligation annulled.