5 Options for Paying Off Debt

paying off debt

Debt of any kind is something we all want to avoid, but let’s face it, sometimes we inevitably find ourselves owing money. Unfortunately, the COVID-19 pandemic has only exacerbated the problem. In fact, 11% of Americans worry about credit card debt and 39% of credit card users find it nearly impossible to make a purchase without using credit. If these statistics describe your situation, you may feel overwhelmed and even hopeless. The good news is that there are many ways to tackle the problem.

Here are five options to consider if you would like to pay off your debt.

Establish payment plans with creditors

Most of us would love to get rid of our debt with one simple payment. However, depending on how much you owe, this may not always be possible. Unfortunately, that doesn’t stop creditors from reaching out to you. To ensure that your debt does not go into collections, the Federal Trade Commission (FTC) recommends that you, “Contact your creditors immediately if you’re having trouble making ends meet. Tell them why it’s difficult for you, and try to work out a modified payment plan that reduces your payments to a more manageable level.” Talking to creditors can be scary, but there are effective methods of doing this. If your debt has already gone to collections before you had a chance to contact your creditors, beware of debt collections and debt judgements and how to handle it. 

Seek out a credit counselor

Do you have a habit of getting into debt that you just can’t seem to break? Do you need an advocate to help you navigate predatory creditors? That’s where a credit counselor comes in handy. They can help you assess your financial situation, break bad habits and create a plan to alleviate or eliminate debt. Like any form of debt assistance, it’s important to learn about the ins and outs of credit counseling to decide which option is right for you. 

If credit counseling sounds like something you could benefit from, check out this government-backed tool for locating credit counselors. You can search approved counseling agencies by state and even by language.

Tap into home equity

If you’re a homeowner, you’re at an advantage when it comes to settling outstanding debt. Home equity loans, sometimes referred to as second mortgages, can bring you one step closer to debt relief. It doesn’t take much effort to build and tap into your home equity. If you have been paying your mortgage on time each month, you’ve already done half of the work. The amount you have paid toward your mortgage is roughly how much you will be approved for in the form of a home equity loan. With this kind of loan, your home will serve as collateral, making it less risky for lenders than a personal loan. But, before you settle on the idea of a home equity loan, you need to determine whether it makes sense for the type of debt you have. So, be sure to research the basics of second mortgages prior to making a final decision.

Snag a second job

For those with a bit more time on their hands, taking on an additional job may be a great option for eradicating debt. If what you owe can be paid off in a matter of months, you might consider a part-time job or gig job. Plus, with the abundance of remote jobs created by the pandemic, you may be able to earn extra money without even leaving your home. Once you secure a second stream of income, it may be a good idea to set up a bank account dedicated to the funds that you earn from that job. That way you can ensure that all the money you earn from your side hustle goes to paying off your debt. 

 File for bankruptcy

Bankruptcy is typically a last resort for those in debt. If your circumstances allow, try the four options above before deciding to file for bankruptcy. If you’re unsure what bankruptcy even means, the United States Court has stated, “Bankruptcy helps people who can no longer pay their debts get a fresh start by liquidating assets to pay their debts or by creating a repayment plan.” However, it may include long-term penalties such as staying on your credit report for 7 to 10 years. That’s why it’ll be so important to make sure you understand how the bankruptcy process works.

Paying off debt can be stressful, but not impossible. Being mindful of your money habits and keeping these five methods in mind may help you endeavor to reach your goal of debt freedom. 

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