Paying Off Personal Debts: 5 Smart Strategies

Personal debts will stop you from building your net-worth until you repay them. Debts may result from medical bills, car repairs or overspending, but in all cases they are a source of financial and personal stress. You will not recognize growth in your net-worth and financial stability until you have paid off your debts. However, if you are in over your head, you need to simplify the process to avoid bankruptcy.

1:  Commit a Budget to Writing

If you can afford to pay off your personal debt but simply need better planning, write a budget. You need to evaluate why you are in debt to begin with. Is your mortgage too high? Do you spend too much on food? Look closely over at least a six-month spending and income trend. See where your budget needs to be in each area in order for you to make ends meet. Include payments on personal debt as an expense you will need to pay each month. When you are paying off debt, you should leave out luxury expenses such as vacations or new furniture. The goal is to take on no additional debt in the time you are repaying the existing personal debt. To hold yourself to the budget, commit it to writing. Studies show that people are more accountable to things when they are written down. Check to see if you are on track with your budget at the end of each week.

2:  Consolidate with a Personal Loan

If debt collectors are ringing your doorbell, you may need to seek a personal loan to get your situation stabilized. A high-risk personal loan is an option for those who have poor credit and need to consolidate. To determine the size and interest rate you can afford on a new loan, keep in mind your ability to pay. Personal loans often are available without cosigners or collateral. Interest rates will be high, but high-risk personal loans are a great way to rebuild your credit if you can afford to pay them. Paying one monthly bill can make the process easier, but defaulting is risky.

3:  Develop Payment Plans

Lenders are willing to work with you. If you cannot pay a bill, make an offer. Tell the lender how much you can afford to pay to start and how much you will pay each month thereafter. As long as you make regular payments, most lenders will be flexible. Even a doctor's office is willing to take payments on most bills. The key is to be aggressive with the plan. Don't wait until the bill goes to collections. Your personal debt will begin to disappear when you make and keep regular payment plans.

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