Paying down or eliminating expensive debts means more money in your pocket and less toward interest payments. It also can bring stress relief. Critical steps include a realistic look at your situation and avoiding expensive and misleading options.
Cash flow: The first step is to examine your cash flow. Compare your income to essential expenses. Determine how much money is left to dedicate toward debt reduction. Understand that if income only covers essential expenses then debt reduction will only be possible if those expenses can be reduced or income is increased.
Examine your debts: Make a list of all debt – credit cards, signature loans, student loans, collection accounts, mortgage, and auto loans. Identify which debts are secured, such as mortgage or auto loans. Check your credit report at www.annualcreditreport.com to make sure you are not forgetting anything. Your list should include interest rates, monthly payments, expected payoff date, and whether or not the loan is current or in default.
Unsecured debt: Check out the University of Florida publication Consumer Debt Management Options http://edis.ifas.ufl.edu/fy1278 for a detailed look at options for dealing with unsecured debt.
Federal student loans: If the debt is in default or unaffordable, check-out the options at www.studentloans.gov . Understand that for unsubsidized loans and loans in forbearance the interest meter is running. Avoid companies that make false promises to wipe-out or reduce federal student loans for a fee. The U.S. Department of Education provides free assistance.
Mortgage debt: If you have a low-interest mortgage you might decide that paying off the loan is less cost effective than investing the money. If you are struggling to avoid foreclosure seek help from a HUD approved counseling agency https://www.hud.gov/offices/hsg/sfh/hcc/fc/ .
Credit card debt: Check out Utah State University Extension’s free, non-commercial, online debt reduction tool www.powerpay.org . It can help you map out a debt payment strategy and you will never receive unsolicited email or other annoying messages.
Avoid costly options: Understand that debt reduction can take time. Refinancing can bring relief, but the cost may be expensive even if the new interest rate is lower. If considering a refinance, calculate total amount you would pay with the current loan vs the new loan. Avoid misleading offers that promise easy, low-cost debt relief regardless of credit history.
Avoid new debt: If overall debt reduction is the goal, put the credit cards away and avoid charging up new debts.
Take one step at a time and you can find a path to debt reduction. If you need help making a plan consider working with a University of Florida Master Money Mentor. The mentors provide free 1-1 educational help and guidance. For more information in Hillsborough County contact Lisa Leslie lmleslie@ufl.edu or 813-744-5519 ext.54143.
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