How To Get Out Of A Debt Trap

Managing your debts can be tricky if you’re having trouble making your monthly payments.

If it seems like you just can’t seem to reduce the total amount you owe you may have stumbled into a debt trap -  but there are ways to get out of it. 

While credit can be an effective way to pay for the lifestyle you desire or cover emergency expenses, it can quickly spiral out of control if you’re juggling multiple lending products with expensive monthly installments.

To help you manage your debts effectively, let’s take a look at a few strategies that financially stressed borrowers can use to regain their freedom.

Reach Out      

Unpaid bills and letters from creditors can start to pile up very quickly. When this starts to happen, the worst thing you could do is ignore them.

If you’re stressed about your debt situation, it’s best to reach out for help sooner than later.

• Approach your creditors: It’s worth remembering that every credit agreement is a contract between two parties: you and your lender. If you’re unable to make your payments on time or feel that you’re overloaded with debt, you can request assistance to get your accounts current again

• Consider credit counseling: If you’re not able to negotiate easier terms with your lender directly, a credit counselor can help you engage with them and make your debt more affordable. As part of the counseling process, you’ll need to attend budgeting and financial planning sessions and commit to repaying your debts. In exchange, you may be able to obtain a lower APR or an extension for your outstanding payments 

Save Money   

The strategies we’ve covered so far are all about getting out of a debt trap – but the best solution of all is not to get into one in the first place.

Controlling your spending and reducing your reliance on credit products for nice-to-have purchases is a great way to boost your financial health and keep your debt levels under control.

• The first step towards saving money is building a monthly budget and reducing your spending on nonessential items. This could mean cutting back on takeout and morning coffees or deciding to keep your current furniture and appliances for an extra year or two before you replace them. However you decide to budget, your end goal should be to create a monthly surplus that you can use to pay down your debt and build up your savings

• Having money left over at the end of the month will also allow you to reduce the amount you charge to your credit cards over time. Paying down your card balances will help improve your credit score because your credit utilization will drop. Moreover, you could save a significant amount in interest payments

Get A Personal Loan      

Applying the above advice will definitely help you balance your debt payments and put you in a stronger financial position going forward - but if you need a quick cash injection to pay for urgent living expenses or overdue debts, a personal loan may be an excellent choice.

• If you have a high APR credit card, you could save money by consolidating the total amount you owe with a personal loan. Replacing revolving credit with installment credit could help improve your credit score thanks to low balances. Additionally, you’re likely to get a better APR on a personal loan than what you’re currently paying on your credit card

• A further benefit of personal loans is that they are available to bad credit borrowers. Even if your FICO score is below 650, you still stand a reasonably good chance of being approved as long as you have a regular income 

Conclusion     

Finding yourself in a debt trap is stressful, but fortunately, there are several strategies you can apply to work your way back to stability.

Reaching out to your creditors for help, budgeting effectively, and consolidating your debt with a personal loan are some of the ways you can regain control of your money and build a solid financial future.