Updated: May 24, 2023

5 Ways to Lower and Pay Down Massive Debt (Part 2)

Ways to lower massive debt and strategies to make payments more manageable.
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Many consumers struggle with paying off high levels of debt, and in these cases, it takes more than budgeting to make the problem manageable. Here are options to take to make massive debt smaller and simplified so you can get on with your life.

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1. Haggle with creditors

If your credit card balance has gotten hefty and interest is piling up, your creditors will notice. Rather than evading them, be the one to reach out -- if not, your debt will most likely be sold to a debt collector. When speaking with your bank, be open and honest. If you tell them what the extenuating circumstances are, they will be more likely to come up with a modified payment plan that can reduce your payments to a smaller, more manageable level.

2. Use the art of negotiation

If your creditors won't budge, there are other ways to get them to come around. Tell them you'll be forced to file bankruptcy if a lower repayment schedule can't be made. Don't be afraid to ask for what you need, including a lower interest rate.

3. Loan consolidation

Consolidation loans are attractive for a few reasons. First off, home owners that have equity can get a home equity loan, an affordable way to pay down debt. By using the loan to pay off their debt, their loan, which was at an 18% interest rate, gets dropped to an amount between 6-7%. Additionally, HEL (home equity line) interest is deductible on income tax returns, which places the rate closer to 4.5%, making it the best deal around.

However, the Federal Trade Commission warns of consolidation debt through a HEL of credit or a second mortgage, because of the risk factor -- the person receiving the loan must put their home up as collateral, meaning that if you are unable to keep up with your payments you could lose your home.

4. Use a debt management plan

Various financial advisors offer help based on the needs of their clients. Legitimate credit counseling agencies can sit with you and help you draw up a plan to repay your debts. If you're worried about cost, non-profit organizations tend to be very affordable, and sometimes, free. One of the suggestions they will likely to recommend is a debt management plan.

With a DMP, your counselor creates a payment schedule agreed upon by you and your creditors. Each month, you deposit money into an account that goes toward paying your unsecured debts, such as student loans and credit card bills. Your creditors may lower your interest rates and waive fees.

5. Open a transfer balance card

A balance transfer card enables you to move all your balances and eliminate interest. The advantage of this is that it wipes out your interest, which would otherwise be accruing each month. However, there are certain disadvantages that can come with this type of card, including new purchases, which is sometimes taxed at a higher interest rate.

Debt can feel burdensome, but there are steps you can take to reduce your debt and begin a payment plan that works for you. Once you've settled on a tactic, stay consistent and practice self-restraint.

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