The best Ways to Pay down Debt
Are you looking for the best ways to pay down debt? There are several options available and each depends on what the debt is, how much it is for and your ability to pay it back. Here are a few suggestions with the pros and cons of ways to pay down your debts.
1) Seek Advice From A Financial Counsellor
If your debts have overtaken your ability to pay them and you are facing bankruptcy, you could meet with a financial counsellor and have all your debts brought into one consolidated loan. A financial counsellor will provide you with practical debt advice.
This is a relatively common procedure but there are some drawbacks to this method.
- You would lose all access to credit cards and lending privileges until this loan is completely paid back. This could be a good thing because you’ll get out of debt and hopefully at the end, stay out of debt. But it could take a few years.
- Your credit standing will be flagged as bad in the bureau until this loan is paid in full.
- Your monthly payments for this debt will be made according to your ability to pay, but your wages could be garnished for this amount each pay until the debt is paid in full.
2) Debt Consolidation
You could visit with a loans officer at the bank and take out a consolidation loan to pay off all your debts. This will allow you to have only one payment a month. Debt consolidation is essentially, bringing together all your loans into one loan.
There are some drawbacks to consider with this method.
- Depending on the size of the loan, the bank may put a lien on your property until the debt is paid in full
- You may or may not have the ability to charge up the credit cards again. Some banks will prohibit it and others won’t care. It would be to your best interest to not touch them.
- Not all debts can be included in consolidations loans. Some examples are court orders, fines, student loans and taxes. So, you may still have a large amount of debt to pay each month.
3) Pay Debts Off Separately
You could speak with a representative from each place of your debt and arrange to make the lowest possible monthly payments to pay the debts off. Then, begin with the debt that charges the highest interest and make large lump sum payments against that loan until it is debt off. Then go to the next one and do the same.
This method allows you to maintain a decent standing with all your creditors while knocking the debts off one at a time.
The basic drawbacks to this method are:
- The Credit bureau might still show you as delinquent for each debt until it is paid off in full.
- You may still have available credit on any existing cards with the danger being that you are likely to run them up again in the event that situations arise where you need that extra money.
Regardless of which solution you choose, it will take time to pay down your debt so don’t give up. And the light at the end of the tunnel gets brighter all the time.