Studies reveal that there has been a rise in vehicle ownership per individual per household in the United States. Households having minimum one car per worker actually account for the bulk share in the increased vehicle ownership in Chicago, Boston, Philadelphia, Los Angeles, and Seattle. The increase in car-light households only accounts for one-fourth of the total increase in car ownership in all these cities. We can understand how auto debts are spiraling in the U.S.A. We understand that Americans owed over $1.14 trillion in terms of auto debts as in September 2018.
If you wish to get out of overpowering automobile debt, you must proceed with a plan. Here are some effective ways of eliminating automobile debt in 2019.
Gather Relevant Data
Once you consider getting out of your auto debts, you must start by determining your exact financial status and the number of auto debts you are grappling with currently. You could get a clear picture of where you actually stand by getting the following:
- Get credit reports from the three major credit bureaus to examine your current credit score and all other details meticulously so that you could detect errors and discrepancies if any. Examining credit reports implies evaluating the accuracy and even identifying the debts.
- Your latest bills and bank statements for all loans, and credit cards and that may include even the auto loans and student loans.
- Your credit score for checking your eligibility for an auto debt consolidation loan or for reducing your rates of interest for the debt consolidation loan.
Make a Comprehensive List of All Your Debts
Once you have collected all the relevant information and data, you may consider making a comprehensive list of all your existing debts and include certain important details like the creditor’s name, interest rate, minimum monthly payment, and the balance.
You need to include in the list the exact amount you would require to pay to effectively zero-out the remaining balance of the auto debt within a targeted timeframe. You must include all the items that are not even listed in your credit profile like the medical bills, family loans, and recurring bills like utilities and groceries. You must determine your take-home pay every month.
Pay More than Required
There is no rule that you have to restrict yourself to paying only the minimum monthly payments on your loan or credit card. You have the liberty to pay more. However, if you are thinking of paying off the debt early you need to ensure that you would not have to pay any prepayment penalty. You must also ensure that all your additional payments must go straightaway to your principal amount and not to your interest.
Let us examine the instance of $5,000 in terms of credit card bill just to understand how making more than your minimum payment could be of immense help. Suppose your monthly payment seems to be $114, you would need to go on paying on that credit card for over five years to successfully pay it off. You would be paying a total of precisely $7,292 and exactly $2,292 in terms of interest. Suppose you pay $300 instead of $114 every month, the card would be paid off in merely 19 months and you end up paying just $642 in terms of interest. You need to remember that the same principle would apply to your auto debt, home equity line of credit, a mortgage etc.
Start Earning More Money
Another effective way of getting out of debt is to start earning more money. That simply does not imply a raise or a new job even though those could be of immense help. It could simply imply trying to take up a side job or some other way of earning some extra bucks. You could take online surveys; do freelancer jobs such as content writing, babysitting, walking dogs, etc.
Try to Avoid Splurging
You need to earn more and at the same time stop splurging. You need to consciously spend less than what you have been doing. If you are grappling with multiple debts, you need to consistently earn more and spend less to come out of the debt trap. Focus on saving a little every time. There are many effective ways of saving a little which could add up and assist in paying down your automotive debt. You could skip your morning coffee or avoid eating out at least, one less day in a week. Carry your own snacks instead of splurging on popcorn, soda, or candy in the movie theatre that costs $30. The extra money saved by you could go towards paying down your overpowering auto debt.
Chalk Out a Budget & a Debt Pay-Off Strategy
Once you have gathered all the facts about your outstanding debts, you must determine precisely how much extra could be paid by you every month. Accordingly, you need to adjust interest rates or modify your spending habits or earning. You definitely, must have a goal. You need to keep track of what you are doing and where you are ultimately heading to. It is important to chalk out a monthly budget and firmly stick to it. You must also chalk out an effective debt pay-off strategy or an effective debt management plan. Several credit unions and online banks provide free budgeting tools. Moreover, you could seek expert advice and professional advice from reputed companies such as NationaldebtRelief.com.
A budget demonstrates what exactly you are spending every month and you could highlight the areas where it would be sensible to divert your funds whether it is from dollars earned or interest saved. This way you could start chalking out your debt pay-off strategy. It could be an integral part of your monthly budget or you could have a separate debt management plan.
An effective way of approaching your debt pay-off strategy is to consider the total payoff amount and use it as your objective to work consistently towards it. You could follow the tips below.
- You need to total the pay-off for the chosen timeframe for all the credit cards.
- Add the monthly payments for all your debts.
- Write down the final result as the total Monthly Payment.
Once you know what your total monthly repayment is, you need to determine if you could afford to pay off that amount every month. If you think you cannot afford that, you could get in touch with a bankruptcy attorney or any reputed credit counseling agency. You need to keep in mind that bankruptcy could adversely affect your credit score and it is better to consider working out an effective payment plan with all your creditors. You could start paying off all your debts by adopting the avalanche or the debt snowball methods.
As per https://www.investopedia.com, a debt avalanche actually is a kind of an accelerated debt payoff strategy. Utilizing the debt avalanche technique, once your debt that has the highest rate of interest is totally paid off, the excess repayment funds would be going toward the next loan with the highest interest rate. This method would be continuing until all your debts are actually paid off. When you are using the debt snowball technique, you would be paying off your debts right from the smallest balance to the largest balance, irrespective of interest rates.
Conclusion: Strive Relentlessly toward Getting Out of Debt
You must stick to your goal of going debt-free. You need to be patient and you need to approach every step with dedication. Do not lose heart or fret if along the way you require to modify your plan. Eliminating your debts cannot be viewed as just a quick fix. You need to dedicate a lot of efforts including modifying your behaviors and habits and completely changing your overall lifestyle. Only then you could achieve a debt-free life.