Brice Capital Analyze the Pros and Cons of Different Debt Reduction Strategies
Getting yourself out of debt can sometimes be a long, painful, time-consuming process. There are, of course, faster and easier ways and longer, slower and harder ways. In some cases, however, what seems like a quick and easy way to get yourself out of debt can actually end up sinking you even deeper into debt. Here are four different debt reduction strategies and the pros and cons of each.
1. Make more, spend less
The “old fashioned” way of getting out of debt is to simply manage your money better in order to pay down debt. This might involve picking up a second job or side hustle or simply budgeting and cutting expenses.
Cutting your debt by increasing your income or decreasing your spending can help you build good personal disciplines that can keep you from getting right back into debt once you climb out. In addition, once your debt is paid down, you can begin investing the excess money you used to spend on bills. Instead of paying interest each month on debt, you can earn interest each month on your money. Last, but not least, once you have paid off your debt, you should be left with much improved credit.
This method is not available to everyone. Some people simply do not make enough money to make ends meet and so rely on credit to make up the difference. In some cases, they may already be working two or more jobs and are barely covering their basic bills like rent, utilities and food. If their debt is too large, they may barely be able to cover much more than the interest each month, which means they will spend several years trying to pay it off.
2. Balance transfers or personal loans
If you have high interest rate credit cards but qualify for lower interest rate cards or personal loans, you can always open up a new account and do a balance transfer or take out a personal loan to consolidate your debt.
A lowered interest rate can help you pay more towards your debt each month. Making higher monthly payments can help you pay off your debt faster.
This method is generally only available to people who have good credit. You are also essentially making it easier to take on even more debt by opening up new lines of credit. If you are good at managing debt, this can be a good option, but if you aren’t good at managing debt, having more credit available to you can just sink you deeper into debt. This option will also likely negatively impact your credit, at least in the short term. This is because it will lower your average age of account, which sometimes can’t be directly offset by reduced credit utilization and lower debt.
3. Debt consolidation
A debt consolidation professional like Brice Capital can help you consolidate a number of different types of debt into a single loan and reduce your monthly bills to a single payment.
PROS: Debt consolidation is generally considered to be a good option for individuals that have more than $10,000 in debt. Rather than paying multiple bills each month and potentially incurring late fees or accidentally missing a payment, individuals can pay a single monthly payment that will simultaneously chip away at multiple debts. Debt consolidation generally does not require an individual to have good credit and doesn’t create more opportunities to sink deeper in debt by opening more lines of credit.
CONS: Not all debt consolidators are ethical, honest and aboveboard like Brice Capital. A legitimate debt consolidation agency can sometimes help you get a lower interest rate for your debt and may even decrease the total amount that you owe. Working with a less reputable debt consolidator, however, can simply increase the amount that you owe and stretch out the payments over a longer time period, leaving you even more in debt than when you started.
Declaring bankruptcy should be a last resort, but it might be the best solution for some. This is particularly true of individuals who incur large, unexpected medical bills. In some cases, there may simply be no way to get out from under it, so bankruptcy may be the only solution.
PROS: Declaring bankruptcy can help protect assets like your home, your car and even life insurance policies or retirement accounts. There are also two types of bankruptcy. If you file Chapter 13 bankruptcy, the court will liquidate all unprotected assets, such as any stocks, bonds or personal items of any value. A Chapter 7 bankruptcy essentially sets you up on a repayment plan that allows you 3-5 years to pay back your debt, but the court doesn’t sell any of your assets as long as you make all of your payments.
CONS: A bankruptcy will stay on your credit record for seven to ten years, depending on which type of bankruptcy you file. A bankruptcy on your credit report can keep you from being able to get low-interest rate loans, rent a home or apartment or even get good insurance rates.
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