(Akiit.com) To build credit you usually have to incur debt, which people generally view as bad practice. But securing financing can be advantageous to you; it is convenient, especially when you are strapped for cash. It also helps you secure funding for products and services that you wouldn’t otherwise be able to afford, such as a home or a vehicle. In an ideal world, you should pay off your loans along with their interest, however it is all too easy to run up your credit and let your debt spiral out of control.
Overspending is all too easy when purchasing items on credit, but it can come back to haunt you when it’s time to pay up. Before you know it your debts have got out of hand, and you find yourself in trouble. Today the average American owes about $90,460 in debt – no small figure. No matter how much debt you are paying off, it can be a long journey, sometimes taking months or even years to pay it all off. Fortunately, there are some strong strategies that can help you get debt-free, quickly. Here are ten of the best.
- Take a Break on Using Your Credit Card
The first thing you have to do is add up all your accumulated debts so that you know how much you need to pay off. Do not be alarmed by the figure you see – if you are dedicated and you stick to a plan, you will eventually pay it all off. Once you have an idea of just how much you owe, it’s time to put a pause on your credit card spending. Why? Because the more you use it, the more debt you will rack up.
Take your credit cards out of your purse or wallet to reduce the temptation of using them when you are out spending. Until you pay off your debts, rely on cash and debit cards only. Remember to switch any automatic online payment methods from your credit to the debit card until you are in a more stable financial situation. When tackling debt, the wisest thing you can do is not generate more, otherwise, you will never break the cycle. 
- Find Additional Sources of Income
When you have multiple income streams, it is easier to clear any outstanding arrears. If, for now, this is not the case, you can create a budget or worksheet to help you identify which areas your money is going into. If you can cut back on certain expenses do so, and add the money to your minimum payment requirement. There are many ways to expand your income stream. You can pick up a part-time job, do some odd jobs, or even turn your hobby into a profitable venture.
- Select the Best Debt Payment Plan for You
Many people rely on debt payment plans to help them clear off any debts. There are about three well-known types of debt repayment options. Let’s see which one of them will help you in the long run. The first is the debt snowflake method, which allows you to list all your fees from the smallest to highest. But instead of paying them off with your primary source of income, you pay with other income sources. This extra money could come from a second job, bonuses, or any other form of earned money.
The second is the debt snowball method. Under this repayment approach, you make a list of your debts, from the lowest to the highest. You will then put more money into clearing off the least expensive debt. Once that balance has been cleared, you roll over that extra money and add it to the minimum requirement to clear off the next balance. It continues until you pay off all outstanding fees. Lastly, with the debt avalanche approach, you list all your interest rates from highest to lowest and then start working on paying off from the highest. You will still have to pay the minimum requirements on all your other debts, but extra money has to go into paying off the debt with the highest interest rate.
Remember that these approaches do not work overnight, and while it may look simple, it might take a long time before you start to see any changes. Therefore, you’ll need a lot of patience. Also, ensure that you choose a method that suits your current financial situation.
- Talk to Your Creditor on Lowering Interest Rates
The higher your interest rates, the longer you are likely to spend clearing a debt. Surprisingly, most of your payments go into clearing off the interest instead of the balance. However, it’s vital to note that interest rates are negotiable, and you can discuss the possibility of getting a lower rate with your creditors. Creditors can have your rates lowered, but it is usually at their discretion. After all, they are also looking for opportunities to earn more. However other factors, like having a good credit rating, can help you.
- Take Out Funds From Your Retirement Savings
If push comes to shove, then you might want to consider taking funds out of your retirement savings to clear your debts when making repayments. However, we must warn you that you will be subject to penalties and tax liabilities if you aren’t at least 59½ years old. The standard or usual withdrawal penalty is a 10% tax increment on the amount you take out.
Therefore, this solution should only be used in extreme cases. Relying on it otherwise means that when you do retire, you might be short on savings. You can also look into the possibility of borrowing from your work-sponsored retirement plan like the 401(k). However, should you leave your job, you are required to pay within a short timeframe, and that could exacerbate your debt situation.
- Take Out Funds From Your Life Insurance
If you have enough funds put towards your life insurance policy, you can withdraw and use it to pay off your loans. But just like going into your retirement fund, this is a high-risk activity that has profound tax implications. Alternatively, you can borrow from your insurance company to avoid any tax implications. However, that might affect the benefits your beneficiaries will receive upon your death.
- Debt Settlement
It would be good to consider debt settlement options for repayments that are overdue, or debts that are more than you can pay within the given period. Many debt settlement companies will work on your behalf and negotiate with creditors on providing you with a one-off lump-sum payment option, which is usually less than the outstanding figure. Creditors are also more likely to accept this payment option for debtors who are at risk of defaulting.
- The Statute of Limitations Law is Your Friend
Sometimes people pay off debts they incurred many years ago when they aren’t required to do so anymore. It’s more about the principle: it feels good knowing that you don’t owe anybody or an institution at all. But when your situation is challenging, and funds are tight, you can’t afford to pay everybody.
Every state has its policies regarding repayment of outstanding fees. Some of these states do not allow creditors to chase after debts after a timeframe. Others also provide a period where creditors can no longer sue you if you default over a loan. Nonetheless, it would be best if you researched what the law says about paying off old debts. If you are fortunate, you might not be required to clear your arrears. Neither would you need to worry about the financial and legal implications that this might come with.
- Credit Counseling
Some companies or agencies specialize in advising you on managing money in general, or debt, more specifically. At some point, you should consider reaching out to such organizations for help. They also offer educational materials on how to get out of debt and teach skills such as how to develop a budget. While some of these services come at a fee, others are free (but you may pay something small). Be mindful of scams and fraudsters and, if possible, get in-person counselling sessions.
- File for Bankruptcy
If you are facing severe debt problems, filing for bankruptcy can be a powerful solution. The process helps to clear off various kinds of debts like medical bills, personal loans, and credit card balances. You are not required to file for bankruptcy with a lawyer; however, having a professional on your side can help you tremendously. You will need someone who understands how laws and procedures work and can give you advice. Fortunately, there are many lawyers – Leinart Law Firm, for example, has the expertise and is willing to assist you. You must also note that filing for bankruptcy does not wipe off all loans. You might still have to pay off your student loans, or if you are required to pay child support or alimony, you might have to continue to do so. Filing for bankruptcy should be your last option.
Financial freedom is essential if you want to be in charge of yourself and your life. Hopefully, these tips will ensure that you find yourself on the right path.
Staff Writer; Ron Shaw