Debt Repair Solutions – The Ultimate Guide
In times of financial hardships, you’ll need to have the right approach as there can be just a few debt relief options. This can easily turn into a chess match where you only end up being a winner if you choose the best debt repair strategy.
Relying on debt relief programs is not always the best solution, and you should first try to do whatever you can to consolidate debt without the help of debt settlement companies. In this guide, we’ll discuss the main debt repair tactics and solutions that won’t endanger your credit score and prevent you from qualifying for another loan ever again.
Ways Of Dealing With Existing Debt
Before we get into further discussion about debt consolidation, you first need to know about the types of debt and ways of dealing with each kind. Most often, consumer debt solutions include methods of dealing with credit card debt.
However, there are other types of debt you might need to face, including installment loan debt, mortgage debt, medical debt, student loan debt and others.
Debt solutions also depend on the type of debt, but it’s always best if you can manage the payments without considering options like bankruptcy or debt settlement. These are the main ways of dealing with existing debt:
- Making a debt management plan
- Re-negotiate payment terms
- Inquiring with a credit counseling agency
- Getting a debt consolidation loan
- Consider bankruptcy or debt relief as a last resort
We’ll first deal with some tactics and methods you can apply yourself, without relying on those last-resort options. You should first put everything on paper to see how much debt you actually have with all the loans and obligations combined.
Making a plan with wiser financial decisions can not only result in erasing your entire debt but also building up your credit rating.
Types Of Debt
In essence, there are three main types of debt you can face and they all include different consequences and debt relief solutions. These are the common debt types you could face:
- Secured Debt
- Unsecured Debt
- Priority Debt
Secured debts are perhaps the type coming with the largest material consequences as they are usually ensured through a lien on your home or personal assets. These loans are therefore the worst kind you can face, as failure to repay would give the creditor rights to your assets.
On the other hand, unsecured debts like credit card debt or medical debts can be solved by using other methods. Finally, priority debts need to be paid urgently before the general unsecured debt.
These debts include child support debts and bankruptcy debts.
Debt Management Tactics You Can Apply Yourself
Before you consider any debt relief solutions, let’s first discuss some methods you can apply on your own. You can make your own debt management program and stick with it until you repay everything that you owe.
However, building a debt management plan isn’t easy, and these are the main factors you need to consider:
- Full debt amount
- Fixed and variable costs
- Monthly income
- Debt management rules
Knowing the amount of your piled-up debts can be a great starting point in making a thorough debt solution. If you have general unsecured debts and need to deal with credit card debt mostly, making this type of a plan should work pretty well for you.
Once you figure out the total amount you owe, it’s time to consider your income and possibly find another source of income, or a side hustle. The due dates for debt repayment are also crucial, especially with refinanced debts.
By counting on all of these factors, you can start making a monthly plan. Try working out if you can achieve making the minimum monthly payments needed just via your income. Also, consider if the time frame gives you enough space to pay the loan installment on time after receiving a paycheck.
Planning Fixed And Variable Costs
Making a budget plan based on your debt amount is the best thing you can do, and what better way to start than by putting fixed and variable costs on paper. You should consider your monthly loan repayment as a fixed cost and proceed from there.
It’s always a smart idea to build a monthly plan and write down how much income you’ll need to cover your debts and also your fixed expenses.
For variable costs, you should always put it on paper and consider that they could be higher than you think.
In other words, give yourself a little cushion when planning your budget.
For instance, if you are planning on going on vacation for a couple of days, write down a higher amount than what you “think” it will be. This way, you will always stick with the plan for your monthly budget and maintain the frequency of debt repayment.
Stick To The 50-30-20 Rule
Solving your debt problems with a monthly budget can be your best move, and a 50-30-20 rule can make a real difference here. Based on this rule, you should spend 50% of your monthly income on fixed expenses excluding the debt repayments.
The 30% should be spent on variable expenses, while 20% should go directly to your monthly debt repayment.
Of course, you have to pay your bills, but if you are renting, you could move into a home with a lower monthly rate.
Variable expenses can also be reduced in favor of having more funds at disposal for monthly debt repayments.
Essentially, you should be able to keep more than just 20% of your salary for debt repayments alone, as long as you reduce any other unnecessary costs.
Re-Negotiate Your Debt Repayment Terms
Another tactic you can apply before considering debt relief options is re-negotiating your debt repayments. It’s one of the best debt solutions you can do on your own without the help of debt relief companies.
Instead, you will reach out to your credit card issuer or lender about the possibility of getting more convenient interest rates or a prolonged time frame for repayment. You’ll also have to state the reasons why you are looking for a new set of rules for adjusting the terms.
However, after re-negotiated terms, you shouldn’t miss another payment due date. You can sometimes pair this method with personal loans, but keep in mind their high interest rates and only consider this as a short-term option.
Get Help From A Credit Counseling Agency
You can also try getting help from a certified credit counselor for getting your financial freedom back. Although it’s unlikely that you’ll get a free consultation, sometimes you can find such services online.
On the other hand, it can be worth your while with proper counseling agencies as they will recommend a debt reduction solution. You can also get the program materials prior to using the tactics, and it can be a great way of tackling debt.
The best thing is that most of these agencies offer at least some free material, so credit counseling can be a much better alternative to debt settlement overall.
Getting A Debt Consolidation Loan
Using a debt consolidation loan to settle your credit card debt and other debts like title loans and installment loans might be a great move to make. With a consolidation loan, you get a more convenient interest rate than with existing loans.
Moreover, instead of having to deal with so many monthly payments, you will only have to make a single monthly payment at more convenient rates.
It’s a great way of dealing with debt reduction, just make sure you find the appropriate consolidation loan.
This type of loan even helps increase your credit score if you use it to successfully repay debts.
You should always try using this method before turning to debt relief companies. There’s one more thing to have in mind with this type of financial solution – the interest rates might depend on your credit score. The higher your credit score is, the lower the rates will be once you negotiate the loan terms.
Consider Bankruptcy or Debt Relief As a Last Resort
If a consolidation loan can’t help and the amount owed is much larger than just having credit card debt, you can opt for debt settlement or bankruptcy. These options are last resort debt relief solutions and they come with specific consequences.
With the debt settlement approach, you would usually use one of the debt relief companies as intermediaries. With their help, you can hopefully strike a lower debt settlement value and lower repayment rates.
However, debt relief companies might take a cut and this option isn’t the most beneficial one for monthly payments. Your creditor might not accept the proposal, so debt settlement could be a risky move to pull.
On the other hand, consider bankruptcy only when you have no other option at your disposal. With this method, one of the bankruptcy options is Chapter 13 that erases your debts with a plan to repay your creditors in the upcoming 3 to 5 years.
While it might even sound like a good debt relief approach, proclaiming bankruptcy will leave an irreversible mark on your credit report.
It can leave a trace that remains on your credit history for even more than 7 years, so it might prevent you from qualifying for any other loans during that period. Still, you might come out of it debt-free, even though it’s the last debt relief option to consider.
Overall, there are some great self-managed options for debt relief and some options like debt settlement or bankruptcy that might require the help of a financial expert. Either way, settling your debt is never easy, so it’s best to start now before the amount gets too overwhelming.
The best debt relief strategy is to rely on your own budget plan to try and work things out without relying on the last resort options we mentioned.
Frequently Asked Questions (FAQ):
Will debt consolidation hurt your credit score?
While your credit score might instantly drop with debt consolidation, it can regenerate if you repay the debts under new conditions on time. It’s therefore much different than bankruptcy, for instance, since bankruptcy won’t give your credit report a chance to heal anytime soon.
What’s the best debt relief tactic you can use?
The best way is to avoid debt collectors and settlement companies and use a 50-30-20 monthly budget planning method to repay the debts from your own pocket.
What’s the fastest way of repaying multiple debts?
Perhaps the best way to repay several debts is to rely on consolidation loans that will help you get a more convenient interest rate and therefore the ability to repay the debt faster than with individual loans.