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What Consumers Can Do To Reduce Their High Interest Debts In 2013

Debt reduction may be one of your New Year’s resolutions for 2013. If so, here are some of your options so that you can succeed in reducing your debts.

The Do-It-Yourself Debt Reduction

With this method, you target paying off particular debts while making minimum payments for the rest. There are two possible approaches to this method. The snowball approach means that you first try to pay off the accounts with the smallest balance, while the avalanche approach requires that you prioritize the debts with the highest interest rate. Use programs like Savvymoney or ReadyforZero so that you can see the results of various scenarios regarding specific repayment plans, so that you’ll know which approach provides you with more significant savings.

Whatever approach you use, you can reduce your debts systematically; once your priority debt is paid off, you then target the next debt according to your approach.

Debt Consolidation

Consolidation means that you get a new loan to pay off all your debts. This means that you combine all your different loans, lines of credit, and credit card balances into a single lone with a fixed repayment schedule. This simplifies your finances by requiring you to make just one payment at a time, and you may also get a lower interest rate for your new loan than the combined interest rate on all your other debts.
This method will work for you if you can secure the loan with a lower interest rate, and if you can avoid the temptation of running up new debts while trying to pay off this singe debt.

Credit Counseling

You may consult a reputable credit counseling organization which can review your budget with you without charging you for their services. They may be able to help you determine if a DMP (debt management plan) can allow you to be free of debt more quickly. The DMP can be great for you if your creditors reduce the interest rates on your loans (according to one report, DMP clients receive an average of 14.5% reduction on their interest rates), and if you have sufficient income and cash flow to repay your debts within five years.

For the DMP to succeed, you need to be honest and accurate regarding your ability to make the required payments until you are completely free of debt. You should also inform the counseling organization should you encounter addition financial difficulties.

Debt Negotiation or Settlement

With this approach, you may be able to pay less than the balance you owe to settle a debt, by negotiating with your creditors. This approach should be considered if you need more than five years to pay the balance of your debt or if you are dealing with a considerable debt which has been turned over to a collection agency. If you are struggling to balance your paychecks, and are struggling with too many loans, then this is a definite goal for the new year. Some creditors may only agree to negotiate if you already have a history of making late payments, so may have to experience a few tense months as you attempt to negotiate with your creditors. This method, however, may work for you if you can come up with sufficient funds (from savings or money loaned from family members, for example) to pay off about one-third to one-half of what you own within two years.

Contributions to this article were made from the editorial staff at short term loans california, a leading portal offering consumers finance news and lending options.

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