Monthly payments got you down? If you feel like all your hard-earned money is flying out the door as fast as it comes in, there are steps you can take to lower your bills. Whether you try negotiating with your lender or enrolling in a debt management plan, these 6 methods can help you lower your amount owed each month and achieve debt-free living.
Strategies to reduce monthly debt payments
1. Speak up when you take out your loan
You can try asking for a more favorable interest rate or a longer payment term when you initially take out your loan. Giving a larger deposit may also help you reduce the monthly payment on a secured loan. Never hurts to ask, right?
2. Negotiate with your lender
You can try to negotiate with your lenders for a lower monthly payment. Contact them and explain your situation. Your issuer may offer you a payment holiday or hardship plan that can help to lower your monthly payments or interest rate.
3. Consider consolidating your debt
A debt consolidation loan is when you take out a new loan to pay off multiple debts. It can give you a lower monthly payment (assuming you’re able to qualify for a lower interest rate) and simplify your bill paying each month, since you only need to worry about making one payment.
For secured loans, such as a mortgage or car loan, you might be able to refinance with a lower interest rate or a longer term. Remember that extending a repayment period will lower your monthly payment but likely cause you to have to pay more interest over time.
4. Look into balance transfers
If you want to lower your credit card payments, you may want to consider a balance transfer. You’ll move your existing card balances to a new card that has a low or 0% promotional APR period. You’ll need a good credit score to qualify for a low or 0% interest card, so if your score is poor you probably won’t qualify.
Keep in mind that you might be charged a balance transfer fee, so double-check that the money you’ll save will outweigh this cost. Lastly, if you’re not able to pay off your full balance during the promotional period, you’ll likely be stuck with a very high interest rate on your remaining payments.
5. Debt management plan
A debt management plan (DMP) is when you work with a credit counselor to lower your monthly payments and interest rates, create a budget, and learn financial wellness tips. Note that it typically takes 3-5 years to pay off all your debt with a DMP.
If simply lowering your monthly payments isn’t enough to get you out of debt repayment trouble, you can consider bankruptcy. If your debt situation is bad enough, it may be the best option for you. However, bankruptcy should only be used as a last resort since it stays on your credit report for 7-10 years. Chapter 13 bankruptcy will create a payment plan for you, while Chapter 7 completely eliminates some types of debt.
Your monthly debt payments don’t have to rule your life. By following one of the above strategies, you’ll be well on your way to lowering your payments and getting your finances back in order. But remember: if you don’t change the spending habits that got you into debt in the first place, you could find yourself back in the red before you know it. Pair these payoff moves with improved spending habits for the best financial results.