Debt consolidation can effectively reduce debt payments. If you want to pay less towards your debts, this is one of the strategies that you need to consider. Knowing the different ways that this reduction can be done will help you identify the right strategy that suits your unique situation. By pairing with the right debt relief strategy, you are increasing your chances of achieving debt freedom.
If you take a look at the current debt situation, it is not that hard to realize that a lot of people are in need of a good debt relief strategy. It is no secret that some Americans feel like it will take forever to pay off their debts. Only 40% said that they can pay off their debts in 5 years. The rest said it will take a longer time to pay it off while some admitted that they feel like they will never get out of debt.
If you feel the same way, you need to start doing something about your debts. You cannot just give up. Sometimes, all you need is the right strategy to get out of debt. And with all the options that you have, it can be confusing to determine which is right for you.
To choose the right option is to analyze your finances and determine what you really want to achieve. Picture what you would like your finances to be like once you achieve debt freedom. Do you want to have a high credit score by then? Or maybe you want to be free from debt fast?
Once you have determined your goals once you are free from debt, it is time to check your current financial position. How much can you afford in terms of monthly payments? If you need a debt reduction, then you will know which type of debt solution you will pursue.
In most cases, what you will choose is a type of debt consolidation program.
Three ways consolidating debts can reduce debt payments
Most people want to reduce debt payments. Sometimes, getting out of debt becomes really hard because it keeps us from really enjoying what we earn. Fortunately, there are several ways that debt can be reduced through debt consolidation. Here are three of the most common ways that can happen.
Through the interest rates
There is an unspoken rule about debt consolidation that involves interest rates. If you cannot get a lower interest rate, then it makes no sense to consolidate debts. So if you will end up with a higher rate, then it might be better to just leave your debts as is.
But if you can borrow a low-interest loan to consolidate high-interest credit card debts, then it makes a lot of sense to go through with it. A low-interest rate may not seem much since it will probably just go down a couple of points. But if you calculate it based on your balance, you might be surprised to know how much it can reduce debt payments.
To achieve this, you will probably need to open a new credit account. A debt consolidation loan or a balance transfer card are options that you can take. These two can lower your interest rates – helping you reduce debt payments for the overall balance that you owe.
Through the minimum monthly payment
Another way that debt consolidation can help reduce your payments is by setting up a lower monthly payment. Some debt-ridden consumers find it hard to stick to a debt relief program when it requires them to pay a high amount of money. Most of the time, they end up using the money to pay for basic necessities. When this happens, they are left unable to pay off their debts. This will lead to penalties and charges that can increase their balance. Not only that, but it can also bring damage to their credit score.
To keep this from happening, you can opt to use debt consolidation to lower your monthly payments. One way to do this is through debt management. The credit counselor can create a debt management plan based on how much you can afford to pay. If you want to reduce debt payments each month, you need to specify the amount that you can conveniently afford. Usually, your debt will be stretched over a longer payment period. This will then be presented to your creditors and lenders. Once they agree, you can stick to the new repayment plan with the lower monthly payment.
Of course, another option is to get a debt consolidation loan with a lower monthly payment. This is also possible as long as you choose a longer repayment plan and you have a good credit score to get a low-interest rate.
Through debt negotiation
Finally, you can reduce debt payments if you opt to negotiate your debts. If you want to make your bills payments bearable, you need to get the courage to talk to your creditors and lenders. You will negotiate to have your whole balance reduced. Obviously, no creditor or lender will do this willingly. But if you convince them that this is the only way that you can afford to pay off your balance, then you can use that reason. For instance, if you just found out you are sick and that treatments will be expensive, you can explain that to the creditor. Tell them that you need to prioritize your medications and that you can only afford to pay a portion of your debts. Or you can say that you lost your job.
Just be honest with them. You may be surprised that they are willing to negotiate with you. If they know that you are willing to pay your dues despite your current situation, they will listen to your proposal. Work on an agreement and make sure everything is in writing. Once you pay this part, the creditor will forgive the rest of the debt.
How to succeed in reducing debt payments
Admittedly, it is hard to reduce debt payments. But if you are feeling stressed about your debt situation, you need to do something about it. According to reports, debt stress is real. This is why a lot of people believe that being debt-free is the definition of real financial success.
If you want to be financially successful, you need to do something about your debts. You can focus on making it bearable so you can completely pay it off. One of the ways to do this is to reduce your debt payments.
To be successful in reducing your payments, here are two things that you can do.
Negotiate with the creditor
The first option is to negotiate with the creditor directly. You just have to establish open communication with them. If there is anything that you do not understand, get in the habit of calling them. In case you got a notice that they will increase your interest rate, talk to them. Ask them not to raise your rates. If you need to reduce debt payments, give them a call immediately. That way, you can resolve issues immediately.
Get help from a debt expert
Not everyone has the time to talk to their creditors or lenders. When you are trying to negotiate your debts, it can take some time as you go back and forth. If you cannot focus, you might not be able to negotiate your case properly. There are also other people who just feel intimidated by the whole process. Or maybe they do not know how to do it well.
If you are one of these people, you might benefit from getting help from a debt expert. These professionals usually have an existing working relationship with creditors and lenders. As long as you put your trust in the right one, they should be able to help reduce debt payments.