The issue of rising debt is becoming so common in our society nowadays. With debt levels in the private and public sector at historic highs, it is no wonder that more people are talking about the problems of debt than ever before.
Now, we’ve all heard of the typical one-line solutions for getting out of debt. “Make more money and spend less” is the most common, but there are more creative ways of taking care of your debts that are seldom talked about.
Debt Snowballing
For those who are looking to get out of debt, debt snowballing can be very helpful when you have several debts.
The first thing to do is to list down all your debts in order of outstanding balance amount. Next, note the amounts you devote to servicing each one of them. Once you have these numbers, simply pay the minimum amount on all your debts and focus all the extra amounts you were putting in all on the debt with the smallest outstanding balance.
Once you have cleared that first debt, repeat this process on each subsequent debt until you are all done. By expediting paying back the smallest debt, a surprising number of people will feel a real uptick in their motivation, which will enable them to continue paying down the rest of their debts. This isn’t be the most mathematically optimal method, but the psychology behind it isn’t something you can ignore.
Practical Debt Retirement
For those who do not need psychological motivation, there is a purely practical route called the interest rate method. Instead of listing down your debts in order of outstanding balance, you would list them in terms of their interest rate. You then pay the minimums on all of them except for the debt with the highest interest rate. Once that debt has been fully paid off, simply go through the steps with the rest of them and you’ll be done before you know it.
Of course, a big benefit of this method is that you are not increasing the amount you are devoting to debt service, since you are simply reshuffling where the money is going to. With the interest rate method, you will also inevitably end up paying down your debts a lot earlier than otherwise and save even more on interest.
Negotiating with the Bank
Many of us see banks as these immovable institutions that cast a large shadow all of us must live under, but it is nonetheless the case that banks are ultimately made up of people that you can talk to.
The idea of debt negotiation is not something new; throughout history debtors have sought to renegotiate terms with their creditors in order to make good on them.
After you have mustered the courage to do so, simply ask to have a sit-down with a representative of your bank or creditor and discuss your situation and intentions in plain and honest language. Make it clear that you would still very much like to make good on what you owe them and more likely than not they will find a way of accommodating. In the vast majority of cases, a creditor will want to work with you as long as the prospect of recovering their principal is possible.
So, as distasteful as it might be for them, creditors have a vested interest in persuading you out of walking out of your debt obligations to them. In fact, some credit card companies will actually be proactive and send you a settlement option where you end up paying a lot less cumulatively than you would have otherwise.
At the end of the day, it really boils down to us making the right choices as individuals and as a society. The consequences of our decisions and actions should be weighed with caution and given ample thought before execution. Imagine a world where people were more careful and tactful about how they led their lives and made life decisions. Well, that change starts with you.
Photo Credit: stock photo
