Q: I have overextended myself with credit card debt and acquired loans to try to pay them off and just gotten deeper and deeper. I am not behind on anything however it is getting harder to keep up. I do not want to let my bills get so behind that they fall into the hands of a debt collector. What options do I have to repay my debt?
You have other options to manage your debt before you fall behind on your payments. Missing your payments damages your credit and it does not guarantee that your creditors will work with you to establish fair debt repayment plans. There’s a due process for your unpaid debts to get to debt collectors’ hands, and once they get to that point, you will have fewer repayment options. In addition, it is likely that your debt may have increased due to accumulated fees and accrued interest, which can make your debt more expensive to repay.
A debt reduction strategy you can try is the snowball method. With this strategy, you pay the smallest debt first while making minimum payments on your other debts. Once you pay it in full, you use those funds to pay your second smallest debt, while still making the other minimum payments, and so on. With every small debt you pay in full, you will have more income to pay off the next debt faster.
A similar strategy to consider consists in paying the debt with the highest interest rate first instead of the smallest one. This strategy may not show immediate results, but it will yield the most savings in the long run. To successfully repay your debts, regardless of the strategy you choose, you need stop getting into additional debt and have extra income to make larger payments on your debts. You also have to be committed to follow your payment plan, which can stretch to several months or years, depending on how large your debt is.
It can seem overwhelming to tackle this on your own, especially if you don’t have disposable income to make the extra payments. You can adjust your living expenses to maximize your income using online budgeting tools or you can enlist the help of a certified credit counselor from an NFCC member agency. A certified credit counselor can give you an objective review of your budget and financial situation and make suggestions to reduce expenses you may have missed.
Also, you can explore additional debt reduction strategies such as a debt management plan (DMP). A DMP is designed to help you pay your debt in full by making one single monthly payment to your credit counseling agency. Then, the agency distributes your payments to your creditors. One of the biggest benefits of a DMP is that it can reduce your interest rates, eliminate fees, and, in some cases, reduce your monthly payments. Needless to say, not all debt repayment options are right for all consumers. Your best course of action is to talk to a credit counselor to determine what is the best strategy for you. Help is one phone call away, start reducing your debt today.
Bruce McClary, Vice President of Communications
Bruce McClary is the Vice President of Communications for the National Foundation for Credit Counseling® (NFCC®). Based in Washington, D.C., he provides marketing and media relations support for the NFCC and its member agencies serving all 50 states and Puerto Rico. Bruce is considered a subject matter expert and interfaces with the national media, serving as a primary representative for the organization. He has been a featured financial expert for the nation’s top news outlets, including USA Today, MSNBC, NBC News, The New York Times, the Wall Street Journal, CNN, MarketWatch, Fox Business, and hundreds of local media outlets from coast to coast.