Did you know the average American had nearly $93,000 in debt as of the end of 2020? This includes an array of debt types, like credit cards, personal loans, vehicle loans, mortgages, educational expenses and more. Living with extreme debt has become normal for many people — but that does not make it any less stressful, frustrating or expensive to be continually dealing with high debt levels.
Are you an American currently struggling with thousands of dollars in debt and seeking debt solutions? There are a handful of avenues worth exploring to figure out which one best suits your situation — here are six ways to get out of debt.
1. Minimum payments
Technically making the minimum payment will spare your accounts for falling delinquent or your credit report showing late payments. But this is the most expensive and longest path toward paying off what you owe because it maximizes the interest charges you will pay along the way.
NerdWallet outlines the downside of minimum payments with this example: Paying off $5,000 at a 16 percent interest rate making only minimum payments of $100 will take nearly seven years and cost almost $3,300 in interest. Funneling an additional $50 per month toward the same debt will decrease the timeline by almost three years and cut the amount of interest paid basically in half.
2. Strategic repayments
If you are planning to repay your debts on your own, using a repayment strategy can help you avoid that minimum payment trap. This approach involves squeezing every cent possible from your budget, then channeling this money toward prioritizing one account at a time while still keeping up with minimum payments on the others.
Some experts recommend starting with the smallest account then moving up the line toward your largest balance; others swear by paying off whichever account is costing you the most in interest first, then moving your way down toward the final smallest-interest balance.
3. Credit counseling
Having advice from a knowledgeable professional on your side can help, which is why making an appointment with a credit counselor may be a good idea. They can look over your budget and debts to help you get a game plan. You may even be eligible to enroll in a debt management program through the credit counseling agency, a three- to five-year strategy that can help reduce interest for smoother repayment.
4. Debt consolidation
Debt consolidation means streamlining. One way to do so is by using the funds from a debt consolidation loan to pay off all your other unsecured debts. For borrowers with good credit, a consolidation loan often has lower interest rates than other types of debts.
Transferring existing credit card balances to a special, zero-percent APR credit card is another way of consolidating meant to make repayment easier by temporarily pausing the accumulation of interest charges.
A third consolidation option is borrowing against equity in your home.
5. Debt settlement
Debt settlement is a potential alternative to bankruptcy. If you have already fallen behind on debt payments due to financial hardship, it may make sense to try to negotiate with creditors for a lower pay off balance. This is something you can try to navigate on your own or that you can work toward with a debt relief company.
Bankruptcy is not to be taken lightly, as it will show up on your credit report for either seven or 10 years depending on the type. You may have to liquidate some of your property to partially repay what you owe, too.
The first step toward eliminating your debt is figuring out which strategy is the best fit for your situation, then taking the necessary steps.