Are you struggling with debt? If so, you should know that you are not alone; many people often encounter this predicament at one point or another throughout their life. Unfortunate situations like a sudden illness, an accident, unemployment, or divorce can affect people financially. As a result, the affected individuals may end up facing challenges in repaying their debts. If you are struggling with debt, here is a guide that can help you find a solution.
Talk to Your Creditors
It is crucial to talk to your creditors before you explore other avenues that you can take to find solutions to your debts. You can agree with your creditors where you can settle your accounts that are due. With debt settlement, you offer a one-time lump sum to cover the debt if you think that you may not be able to repay within a few years. If the creditor agrees to a lump sum payment, they may cancel the rest of the debt if the risk of default is high.
Alternatively, you may consider a debt management plan with your creditor where you can pay off your unsecured debts over a longer period. For instance, you can make weekly or monthly payments that you can afford until you clear your debt. If possible, you can also liaise with the creditor to lower your interests if you already have penalties.
Debt consolidation is another viable option that you can consider to resolve your debt problem. The UK-based financial consultants at Jubilee2000UK.org explain that you can consolidate all your debts into one affordable payment. When you consolidate your debt, you can avoid bankruptcy, and you might not need to borrow more money to pay off your debts. However, at least 75% of the creditors will need to approve your debt consolidation proposal before it comes into effect.
Stop Incurring More Debt
When you are already overwhelmed by debt, you should not seek to continue adding debt. Instead, you should stop borrowing more money since this can worsen your already dire situation. You should reduce the temptation of using your credit, but try other methods of making more money. If possible, you can try to get side jobs to earn extra income that can help you pay off your debts. Another option that you can consider is to sell other possessions that you no longer need. This can go a long way in helping you generate extra revenue to repay your debts.
You must review your budget to ensure that you do not overspend which can affect your finances.
For instance, you can do away with certain things that add little value to your life. Instead of eating out, you can prepare your dinner at home that you will share with your family. You must try to pay as much money as possible toward your debt reduction to reduce monthly interest charges. If you want to achieve this, you must exercise great financial discipline.
Withdraw from Retirement Fund
Withdrawing money from your retirement fund to pay off your debt should come as the last resort. If you are below 60 years, you are likely to face additional tax liability and early withdrawal penalties. The standard early withdrawal penalty is usually 10% and this can compromise your account when retirement finally comes. You should know that it is possible to borrow from other retirement plans 401(k) that are work sponsored. However, this option can worsen your debt problems if you leave your current job. You would be required to repay the loan in full within a specific period.
Similarly, you may also try to cash out your life insurance policy if you have accumulated some money in your universal or whole life plan. However, this option comes with some risks like tapping your retirement funds. Borrowing from your life policy can affect the beneficiaries since they may not get suitable benefits.
Get Help from Debt Counselors
It is vital to get credit counseling from professionals so that you can overcome the challenge you would be facing. What you should know is that whatever strategy you adopt, your debt would not disappear overnight. This is when debt counselors come in handy since they would give you professional advice about how to handle debt and prevent it in the future.
We all experience financial challenges at one point or another, and this can increase our debts exponentially. If you are struggling with debt, you should stop borrowing and start taking the necessary measures that will help you reduce your debt. Methods like debt consolidation and working side jobs to earn additional revenue can help you manage your debts.