Here are options to consider to reduce debt and payoff bills. Depending upon your circumstances, you may need to use a combination of these solutions.
Negotiate Interest - Contact your credit card company or loan lender and ask for a lower interest rate. Credit card companies are more likely to offer you a lower interest rate than loan lenders. Let's see how much you can save; and lower your repayment, if you can get your credit card company to reduce your interest rate. If you have; for example, an $8,000 balance and plan payoff after 36 months, you will need to pay $309.69 per month. At the end of the 36 months, the total Principal and Interest paid would be $11,148.21. But, if you get your credit card company to lower the interest rate down to 18%, you would pay $289.23 per month (over $20 less). Plus, the total Principal and Interest paid would be only $10,411.77 (a savings of $736.44).
| Transfer Chart | Monthly Payment
(for 36 month term) | Payoff Total
(after 36 months) |
| 23% APR | $309.69 | $11,148.21 |
| 18% APR | $289.23 | $10,411.77 |
Debt Negotiation - Be careful with this option, because it can impact your credit report score, which could also cause all of your creditors to consider you to be a high risk and subsequently increase your interest rate. This should be your last option, just above filing bankruptcy. Contact the creditor(s)/lender(s) you have the worst problem repaying (perhaps the one with the highest interest rate and/or largest unsecured debt). Try to limit the number of creditors/lenders you will negotiate settlement with. Calculate how much you're able to pay each. Call the creditor(s)/lender(s) and explain your debt problem and make a payoff offer (some companies will accept a payoff as low as 20% of the original balance). If a customer service representative tells you no, don't raise your voice or become angry. Ask to speak to a supervisor or manager. But before you actually remit the settled amount, first get the agreement in writing, preferably on company letterhead. You can also ask if they will not report the payoff as a chargeoff, but this isn't very likely to happen. Hence, be prepared for negative impact on your credit report, and possibly interest rate increases by your other creditors/lenders.
Debt Consolidation - There are two basic types of debt consolidation
- Unsecured Debt Consolidation Loan - This option uses a loan; typically a home equity loan, to fund payoff of other, higher interest bills like credit card debt. Calculate the average interest rate for all of your current debt and apply for a loan that has a lower interest rate than your overall current average. Avoid getting a loan that simply lowers your payments by extending the repayment period (for example, repaying over 5 years versus 4 years). With such a loan, you'll likely end up paying more interest over time than you would otherwise.
- Unsecured Debt Consolidation Without a Loan - This is much like credit counseling and debt management. Like the loan version, it also combines monthly bills into one lower payment, yet without any type of loan.
Balance Transfer - This option requires a good credit score. Transferring balances from a higher interest card to a lower interest (or 0 intro card), can save you money but only if you actually work towards paying off the balance before the introductory rate expires.
Credit Counseling - Professional credit counselors; due to their experience, are often better skilled at negotiating lower interest rates and payments from your creditors (do not confuse their service with that of debt settlement companies). Enrolling in a credit counselor's debt management plan (DMP) will allow you to get lower monthly payments making it easier to pay off your debt. Credit counselors can also help you make a budget and teach you money management skills. Read our tips on how to choose a credit counselor plus browse our other non-profit resources.
File bankruptcy - If you're so deep in debt that you're already defaulting on payments and it no longer matters how badly credit report companies rate your credit, then bankruptcy filing may be right for you. Unfortunately, a recent bankruptcy law prevents people from abusing bankruptcy courts and requires an income-debt comparison in addition to attending consumer credit counseling before you can even file bankruptcy. Chapter 7 bankruptcy will allow you to completely wipe out certain debts while Chapter 13 bankruptcy creates a repayment plan.
Get more advice on how to reduce debt and lower payments, including a debt consolidation loan, debt settlement, credit card chargeoff, credit counseling and balance transfer.
