Help Your Financial Situation with These 4 Debt Reduction Programs

Debt reduction programs all revolve around a simple concept: paying off a large portion of debt through negotiation strategies. Of course, debt reduction can be accomplished through budgeting for increased monthly payments. For many borrowers already at their monthly limit, this is not a viable option. Trying these strategies instead can help reduce debt without taking on high payments.

#1 Interest Buy Down

If you have come into a recent amount of cash, perhaps through a bonus, tax refund or inheritance, you may consider using it to pay down a principal debt. This can be helpful to reduce the total debt listed on your debt profile, but it will not actually ease your payment burden in the immediate future. You may consider buying down the interest rate on your loan for a short period of time. This will reduce your monthly payments, easing your debt burden, and have the same impact on the total cost of your loan over time as paying down a portion of the principal would. This is also a good option if you are about to enter an expensive period of your life, such as going back to school or having a child.

#2 Loan Refinancing

Refinancing your loan basically means restructuring a portion of your debts. This may not seem like a reduction strategy at first, but it can be if you approach it in the right way. If you have some liquidity on your hands currently and would like to reduce your debt, take the steps to also reduce your debt burden through a refinance. Consider taking a third-party loan for an amount smaller than the one you have remaining on your current debt. Use this plus your liquidity to prepay your existing loan. You will be left with a smaller amount of debt and smaller payments to make on your remaining loan.

#3 Debt Transfers

Transferring debt from one lender to another without reducing the principal will not immediately lower your debt. However, if you transfer to a loan with a more favorable interest rate, you may be able to reduce your debt burden over time. A lower interest rate allows you to make the exact same payments each month but still take a bigger chunk out of your principal with that payment. You can easily transfer the balance on a credit card to a lower rate credit card, and the same model can be followed with installment debts.

#4 Debt Settlement

Settling debt is not the best option for most borrowers. It typically results in a large drop in credit, which can make it hard to take a new loan for years to come. However, if you do not need to take any more loans in the near future, settling your debt now can actually propel you onto more solid financial ground. You may contact a debt settlement company, or you may attempt to negotiate payments yourself. If you settle on your own, the expense will generally be lower, but it is a complicated maneuver, so you may feel more comfortable paying the fees to have an agent go to work for you.

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