For many people drowning in debt, bankruptcy may seem like the only option. What many people don’t know is that not everyone qualifies for bankruptcy protection. Further, bankruptcy may not be the most beneficial tool for debt elimination for everyone.
When it comes to developing a plan to eliminate personal debt, there are several methods that anyone can use to successfully reduce their debt burdens. These methods require more attention to detail and effort that other debt relief options, but can be more gratifying in the end when the debts are paid and the credit report is intact.
High To Low Method
The average American has three or more credit cards totaling thousands of dollars in debt and at least one other source of debt through personal loans, mortgage or a car. One strategy to reduce debts is to tackle the debt source that has the highest interest rate first.
Generally, people start with their highest interest earning credit card and pay as much as possible each month on the card, while making minimum payments on every other debt source. Once that card is paid off the card with the next highest interest rate is targeted. This method can take time, depending on how much debt you have, but can greatly improve your credit standing while you work to eliminate your debts.
Developing a debt elimination plan can be overwhelming for many people. Sometimes, focusing on the card with the smallest balance first can encourage consistency and focus in the debt elimination plan. Paying off the smallest debt first quickly provides a reinforcing effect on the behavior of getting out of debt, which makes it more likely that you will stick to the plan over time.
In some cases, transferring balances from several credit cards to one, low interest card can be a good first step in a debt elimination plan. Once the majority of the debt is localized to one creditor, it can be easier to manage payments and pay more than the minimum balances each month.
However, balance transfers can easily turn into more debt when people free up their previous lines of credit. If you are going to transfer balances to one card, be sure to close the other accounts or take the cards out of your wallet to prevent temptation. Balance transfers should always be followed by a focused effort of paying as much as possible towards the balance each month to pay off the consolidated debt as quickly as possible.