Debt Repayment Plans That Don’t Work

There are a million people out there telling you how to pay off your debt. You have to consider your personal spending habits and reasons before you are able to make a debt repayment plan that works for you.

For many it takes a combination of different methods to find a formula for success. Getting out of debt is a wonderful goal, but often in desperation it leads to many mistakes. And these mistakes can end up costing you more in the long run.

There are a few methods you should avoid. Many experts will tell you to go ahead and take out a home equity line of credit or loan to pay off your credit card debt, especially if they want you to borrow from them. It’s not a good idea.

Credit card debt is unsecured debt. There are no assets that can be taken if you fail to pay them like your car, home or belongings.

A mortgage, equity loan or line of credit is a secured debt. If you don’t pay you will lose your home.

You should also avoid using a 401(k) loan to pay off your credit card debt. Your contributions to your 401(k) are not taxed. So when you pay yourself back you are using after-tax money, but you are still losing money.

When you take money out for retirement, you will absolutely be taxed for it again. Not a great financial move.

So don’t use your home or your retirement as a way to bail yourself out of debt. Remember the tried and true is always your best bet. Create a budget, spend less, pay more on your debt, negotiate with your lenders and work hard.

Some Of The Best Debt Repayment Plans

Mary Hunt is one of the top financial-guru’s of our time. Here are her top four recommendations. What sets her apart from all the other authors is that she conquered those same staggering debts in her own life

No more new debt and this should be self-evident. No debt payoff plan will work, not a one of them, if you’re taking on more debt.

If the debts you’re currently paying have declining minimum payments, you must pay the same amount every month until those debts are paid. Disregard any declining minimum payments.

Keep paying the same amount towards the debt, or more if possible, month in and month out. After a few months, you’re accomplishing exactly what financial pros advise: Always pay more than the minimum.

List your debts according to “duration until payoff” (balance plus interest, divided by payment). The debt with the shortest payoff time goes at the top. From there, list each debt in ascending order, by duration until payoff.

Now rearrange your debts in order of smallest “duration until payoff” to largest. This is the order in which to launch your torpedoes and start sinking those debts.

Another occurrence of the snowball method of debt payoff is to compound your payments. When you pay off one debt in full, take its monthly payment and add it to the payment of the next debt. When that debt is paid off, take its payment money and add it to the next payment and so on.

Payday loans are designed to help you get out of your financial troubles quickly and easily. But are they really your best option when it comes to getting out of debt? Or are they just a new way to get further in debt? Do they really solve problems as “quickly and easily” as they say they can?

Most payday loans are designed with the intent that you really will not be able to pay them off in a timely manner. The idea they place in your mind is that you can borrow money from them and be able to pay it off by the time that next paycheck of yours comes along. But most of the time, there are fees and interest that you haven’t considered when taking out the loan. These seem like quick fixes but can get you even farther in debt.

Experts say that getting farther into debt to get out of debt is not the right option. There are a lot of different alternatives when it comes to getting out of debt. If you are trying to choose between taking a payday loan and filing for bankruptcy, there are many different options to look at before choosing one or the other.

One of your best options if you are in over your head is to contact a financial advisor. There are many different non-profit financial credit counseling organizations that are willing and able to assist you with your needs. The majority are free or low cost, so getting help will not affect your pocketbook. They are also able to negotiate your interest rates to help you lower them. They have been doing what they do for a long time. It is easier to trust them than it should be to trust a payday loan manager.

Another option is to try and find the money by other means. Borrowing from a friend or a family member will be a much better option than a payday loan. And the interest will not be unreal high like it is with other loans. If you are having good communication with all of your creditors, they are generally willing to work something out with you until you can get back on your feet. Don’t be discouraged because there are always options.

It is always recommended to be extra careful when dealing with payday loans also. There is always fine print, and stipulations that they may try to convey to you as non-essential and not important but they are generally the most important thing that you should be paying attention to. They want it to seem like an end to all your financial problems when generally it is just opening another chapter to them.

Payday loans seem like a great way to deal with things when it gets tough. They offer instant approvals for people who have no credit or bad credit. They have flashy offers and promises that seem achievable for you but are really out of your reach. These are tricks that thousands of people are falling for every day but you should be smart enough not to get into that trap.