Get Serious About Consumer Debt: 5 Ways You Can Take a Positive Step Towards Eliminating the Bad Debt Accounts in Your Records

It doesn’t take an expert to divine that bad debt is a burden, not only to the liable individuals but also their credit providers. According to the quarterly report released by the Federal Reserve Bank of New York in August, total consumer debts hit a record $12.8 trillion, surpassing the 2008 peak of $12.7 trillion.

Heavy indebtedness causes financial stress and leads to delinquencies, which in turn affects credit scores. For this reason, consumers need to take matters into their own hands and explore all possibilities for eliminating bad debt. Here are five steps that will put struggling borrowers on the road to fiscal recovery.

  1. Calculate dues and stop borrowing

Financial distress doesn’t descend out of the blue. It follows years of steady borrowing, typically against credit cards. A mortgage and a car loan would be considered reasonable spending. But how about trips abroad, fancy furniture, and designer clothes?  Many people can’t afford them but still spend on such items. The point is that consumers often have only a vague idea of what they owe, so the first step to recovery involves compiling a list of all financial obligations.

It also stands to reason that any new borrowing should stop immediately. This requires a conscious effort and is critical for building fiscal discipline.

  1. Evaluate options

If the total amount of debt seems manageable, the borrower can proceed with mapping out a repayment strategy. It may help to recruit a credit counseling agency, which aids people with debt consolidation, assists in dealings with creditors, and advises on money management. In cases of disputed debts, a commercial litigation lawyer would be the person to involve.

Extreme indebtedness could prompt a borrower to consider personal bankruptcy. However, that option should be the absolute last resort because it will have grave consequences for the person’s credit record.

  1. Prioritize high-interest payments

It makes sense to start with eliminating obligations that carry a high interest rate. Besides, it often helps if people focus on one debt at a time. Financial problems are typically associated with credit cards, so tackling them one by one could be the most practical solution.

Another important thing is to go above and beyond the call of duty, so to speak. This means depositing as much as possible every month, not just stopping at the minimum payment. In this way, not only will debt be repaid sooner but borrowers will save on interest charges.

  1. Make lifestyle changes

Those trips abroad and designer clothes mentioned above? This is called discretionary spending and must stop when eliminating bad debt is the goal. People in financial distress should also consider giving up on personal “luxuries” such as subscription services, club memberships, regular nights out and the like.

  1. Go the extra mile

Sometimes borrowers will have to do more than ditch eating out and their cable service. Many will need a second job to get their debt under control. The smart decision would be to invest every extra dollar into payments.

Restoring financial health requires commitment and quite a few sacrifices. The good news is that these tough times won’t last forever. One day, a person will wake up free of bad debt while the knowledge and discipline gained during that struggle will ensure that past mistakes are not repeated.

 

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