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The 4 Best Other ways to Pay Off Debt

by Mike Schiano

Of course, nothing beats cutting your expenses, increasing your income and paying off your debts yourself as fast as possible. We can give you guidance on that but, if you simply have cut all the expenses you can and still can't find a way to increase income fast enough, like so many of our readers and listeners, here are the best other ways to get out of debt.

Debt Settlement A process through which you can pay off debt with the professional help of Debt Settlement companies. These companies negotiate with your creditors in an effort to reduce your outstanding balance by 40%-60%.

Debt Management Is a debt assistance program in which a non-profit credit counseling agency helps you to pay off debt through a monthly payment plan negotiated with your creditors. While you're in a debt management plan (DMP), your creditors may cut down interest rates and reduce or even waive late fees.

Debt Consolidation Loans This is a kind of personal loan with which you can consolidate your dues into a single payment. That is, you pay off debts using a single loan. Then you'll have to make a single payment each month in order to pay back the consolidation loan. This helps in paying off debts without having to deal with several creditors at a time.

Spending Plan Done properly, it's an option which helps you to pay off debt without any professional assistance. All you have to do is assess your financial situation, prepare a spending plan and follow your plan strictly. Creating a Spending Plan helps you to avoid overspending and helps you increase cash flow to help you focus extra money on paying off debt. I cover how to create a Spending Plan in detail in my book, Spend Your Way to Wealth. Get a Free Copy of my book here.


Debt Consolidation Loans

Debt consolidation loans can be one of the options that can get you out of debt. Debt consolidation loans help you to combine all your debts into a single debt account. Due to this, your debts can be handled more efficiently and effectively.

Types of debt consolidation loans

There are two types of debt consolidation loans that you can avail- a secured debt consolidation loan and an unsecured debt consolidation loan. In case of secured debt consolidation loan you are required to use collateral in order to get a loan. In majority of the cases, the debtors use their homes as collateral.

In case of unsecured debt consolidation loans, no collateral is required. The loan is availed depending on the capacity of the debtor to repay the debt amount.

Important aspects of debt consolidation loans

There are certain factors that you need to pay heed to before you apply for a debt consolidation loan. You need to keep in mind the following-

Rate of interest

The interest rate of the debt consolidation loans differ and generally the interest rate in case of secured loans is less than the interest rate of unsecured loans. So you can accordingly decide the type of loan you should opt for.

Fees charged by the creditor

You should avoid taking loans from creditors who charge high fees and are not transparent in their dealings. These companies claim that they help in reducing the debts completely but in reality it may not be the case. It is best to choose a company keeping the fees in mind.

Impact on Credit score

Maintaining a good credit score is very important. If you are unable to pay back the loan amount, it negatively impacts your credit score. Creditors should be transparent about credit score issues also.

Monthly payments

Evaluate your financial situation and if you find that the amount you are paying currently will be reduced to a considerable extent if you avail debt consolidation loan, you should opt for it.

Pros of debt consolidation loans

There are several advantages of availing debt consolidation loans. Some of them are as follows-

• You can avoid making late payments.
• You do not have to be harassed by collection agencies for not paying the outstanding balance.
• You enjoy a lower rate of interest
• You do not have to take the trouble of making payments to multiple lenders.
• You can make payments for all your bills in a single payment.

Cons of debt consolidation loans

Despite the fact that debt consolidation loans have several advantages, they have disadvantages as well. They may be summarized as follows-

• The repayment time is usually prolonged and in some cases, the debtor may end up paying actually more to get rid of the debts.
• In case of a secured debt consolidation loan, the debtor uses collateral. If the debtor is not able to make payments regularly, the property of the debtor used as collateral gets confiscated.

Debt consolidation has been a proven method of helping people get out of debt and debt consolidation loans offer a great opportunity for debtors to lead a debt free life.