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This article is not aimed at those who want to reduce debt or have no debt. It is aimed at those who are in deep trouble, those who want to file for bankruptcy, and those who may not know that they have too much debt, but find that credit card debt is snowballing.
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If you rely on the method of “robbing Peter to pay Paul” every month, you should seriously consider how to get out of the debt crisis.
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Your short-term goal is to make your debt less than your income, so that you can repay the installment without borrowing money every month. Most people find themselves able to limit their monthly total debt (including rent) to less than 40% of their total income.
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You can control debt by following these simple steps:
- 1. Make a list of your debts.
- 2. Make a detailed list of your assets.
- 3. Put an asterisk in front of your debt assets (your house may have mortgage, your car may have to pay off the car loan).
- 4. If you have investments on your asset list, consider reducing high interest loans with investments – perhaps credit card loans. If you want to use your IRA or 401 (k) retirement benefit plan, talk to a tax consultant first.
- 5. Sell your toys. Consider selling ships, RV recreational vehicles, ATV beach bikes, motorcycles and other tools that require fuel costs but are not used daily. These assets are often worth thousands of dollars and sold to repay consumer loans. Otherwise, you still need to continue to invest in insurance and use, increasing your budget pressure. Sell them and rent toys you can afford.
- 6. Organize a sale or bargain sale, and eliminate the things you don’t need, which take up space but still have use value. Use proceeds to reduce debt.
- 7. If you want to pay off the car loan, you can consider selling the car, paying off the car loan, and buying a used car with cash. A better way is to sell the car, pay off the car loan and take public transport instead. As a result, monthly savings will increase rapidly.
- 8. Finally, if your mortgage is lower than the house value, you can consider selling the house and buying a small house with less mortgage. Maybe you will see that your new neighbor drives a cheaper car and doesn’t go abroad for holidays, which reduces the pressure of “comparison” and is also a kind of “welfare”.
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If none of the above steps can help you control your debt, you should consider seeking help from a consumer loan consulting service company, or even filing for bankruptcy. If you want to avoid these, you must seek relief from the lender. Some lenders are willing to help you escape bankruptcy, because if you file for bankruptcy, they can recover less debt.
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Once your debt is reduced to a controllable scale, set the goal of paying off the debt. Pay off small debts first, then large debts until all debts are paid off.