Debt is something millions of people struggle with, and once you get into it, it seems like you only take on more in your attempt to escape. You might even take out loans to pay off credit cards, medical bills, or other expenses, leaving you trapped in a cycle of high-interest rates, late fees, and costly monthly payments. It’s not uncommon to even experience severe financial anxiety and depression over money problems, particularly if your entire financial security is being dictated by how much you owe.
The goal isn’t to live debt-free right now; expecting to escape debt immediately will likely only compile your stress. Instead, you should focus on ways you can manage your debt and start to gain financial independence again. Here are four options to explore.
Consolidate or Refinance
Consolidation is the act of taking out one large loan to pay off all your outstanding debt. Then, you are responsible only for paying off the remaining sum of the loan. This can be beneficial for people who have multiple lines of credit, medical bills, loans, and other forms of debt that are difficult to manage independently.
By paying them off at once, you avoid the penalties, interest, and added expenses from repaying them one by one. You may also finally put yourself in a position to be debt-free within a few years if you only have one larger loan to worry about.
Refinancing, on the other hand, is the process of “swapping” your current loan for another. This can be beneficial if your mortgage or auto loan have high monthly payments or interest rates that you wish to lower to save money.
Negotiate With Lenders
If you are struggling to make ends meet, and you aren’t sure if you can even pay your credit bill, speak to your lenders. In most cases, they are willing to negotiate the terms of your repayment plan. Whether it’s a deferment, forgiveness, or income-based payback program, the only way you can find out what your options are is by reaching out to each lender directly.
Do not fear that you will get in trouble simply by inquiring about your options. Life can change in an instant, and a plan that was once affordable could suddenly be too much. Rather than missing payments, which lowers your credit score, or defaulting altogether, recognize your struggle and seek solutions ASAP.
Learn About Bankruptcy
Bankruptcy affects your life for years after you file. It may be the fresh start you need, but it should never be done without thorough research and professional consultation. Research bankruptcy law to understand the different types of bankruptcy, what types of debt it erases, and what types it does not. For example, bankruptcy does not eliminate unpaid child support, student loans, or most tax debts. It can also not prevent your home from being foreclosed upon or repossessed if the lender has a lien on it.
By working with a professional, you can determine whether bankruptcy would benefit your situation or cause greater problems. You will have to allocate at least 18 to 24 months to rebuild your credit, so you’ll have to factor that into your life plan prior to filing.
Work With a Credit Counselor
The National Foundation for Credit Counseling offers free credit counseling and tips on how to manage debt; professional, paid services can also have representatives act on your behalf to negotiate deals with lenders. These deals can include lowering payments, removing late fees or extending payment durations to reduce interest.
Getting out of debt is an ongoing process, one that often takes years to fully complete. While you may not be living without bills for quite some time, taking systematic steps to gain greater control over your finances can be done little by little, month by month. With the right approach, you can even learn how to save money while paying off your outstanding balances.
Anita is a freelance writer from Denver, CO. She studied at Colorado State University and now enjoys writing about health, business, and family. A mother of two wonderful children, she loves traveling with her family whenever she isn’t writing. She recommends looking into bankruptcy law if your debt has become overwhelming. You can find her on Twitter @anitaginsburg.
