Smartly Dealing with Debts Demanding Higher Interest Rates
Wipe our Debt (Photo credit: Images_of_Money)
Having a big debt to repay is problematic but having to pay a higher interest rate on it is even more problematic. This is because it can certainly drain away your hard-earned money rapidly. Furthermore, what happens is that a significant part of your money goes towards the monthly interest charged on the balance, which you can otherwise use as profitable investments such creating a reserve or educating a child. Therefore, it makes sense to save money in the long run by averting the payment of higher interest rates. Here are some ways to deal with a higher interest rate.
Pay Off Smaller Debts Initially
It may not be an effective strategy to get rid of a debt with a higher interest rate first. Therefore, focus on paying off a few debts that are of smaller amounts, which would save more money for you meet your debts with high interest rate. You can find the debts with low amount as well as interest rate by making a list of all the debts. Select such debts and make them your initial priority to repay off while leaving others aside to pay them off later. As and when you save, put those savings toward another debt of big amounts.
Reduce Expenses
Nothing can be as useful as cutting down on the expenses on eating out, such as coffee, sodas, burgers, and meals in restaurants. You must even reduce your budget for cigarettes, parties, traveling, and costly mobile phone plans. These are some of the sources from where you can withdraw money so that you can increase your budget for paying off your debts and their interest charges. Even if you just disconnect the cable and stop eating outside that you used to more often, you can add up almost over $100 towards the monthly payment.
Build a Special Reserve
In order to get rid of higher interest rates, you can consider earning some extra income and build a reserve out of it. This will ensure that you do not lose your credibility neither in the eyes of your creditor nor in the market. You can earn more income by selling some household things, getting a short-term loan on a lower interest but occasionally, or giving some counseling in which you are expert in at a market price.
Bargain for a Lower Interest Rate
Do not be under the impression that creditors are never willing to reduce the interest rate. If you have a good history of paying back on time, you can expect some good cut off. Usually, people with good repayment history have more chances of enjoying such a cut off because the creditors know that they will pay on time. Even if you have previously missed one or two payments, it is fine. Otherwise, also, you can bargain by saying that you are getting other offers at lower rates to encourage the creditor for reducing the rates.
Go for Credit Counseling
A counselor can help you by creating a perfect debt management plan as per your income, expenses, and debt amount. Through this plan, the creditor reduces your monthly payment as well as the interest rate. This is exactly what you require but it comes at a cost. Well, you will have to stop using your credit cards until you are on this plan. Further, your credit report will surely disclose this counseling strategy. Moreover, you can tap the benefit of lower interest rate by agreeing to make bigger monthly payments. Usually, the counselor will work more towards consolidating the debt to reduce the interest rate.
Bio: Peter Smith is a writer as well as a financial consultant in a small company in Singapore. He writes on topics related to finance. Recently, he managed to obtain affordable loan online to meet an unexpected emergency. He took it from sgloans.sg loan provider.
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Category: Debt
