What If Budgeting Isn’t Enough to Eliminate Your Debt?

Creating some form of a workable budget is an important step toward building a financial foundation — and that goes for anyone, regardless of income or debt level. But while budgeting is a great and necessary start, it’s not always enough to eliminate substantial debt.

So, you’ve crunched the numbers. You’ve tracked your spending. You’ve tightened the purse strings. And yet you’re still struggling to put a dent in your debt. What else can you try? The good news is there are strategies you can use in combination with budgeting to strategically reduce your current debt load, or get rid of it altogether.

Meet with a Credit Counselor

If you’ve been sticking to a spending plan for months without seeing much impact on your debt levels, meeting with a credit counselor can help you figure out why. First, you’ll want to do your research and make sure you choose a reputable agency with which to work. Then you can set up a free appointment for a personalized money management advice and/or budgeting help consultation.

One route a credit counselor may recommend is enrolling in a debt management plan (DMP) through their agency — which will entail you making a single, direct payment to the agency each month and allowing them to pass your funds along to creditors. The potential advantage here is you may be able to score more favorable interest rates and lower fees by virtue of being in a DMP.

But, as the Federal Trade Commission points out, reputable credit counseling agencies will provide ongoing budgeting and money management advice whether or not you end up moving forward with a DMP.

Consider Consolidating Debts

Debt management is one form of consolidating debts or making them simpler and less expensive to pay off. But there are other ways to approach consolidation — like taking out a personal loan at a lower interest rate and using it to pay off all your outstanding high-interest debts. Qualifying for a competitive consolidation loan typically requires a strong credit history.

There’s also the option of conducting a balance transfer, also known as paying a small fee — often between one and three percent of the total — to move a credit card balance from a high-interest card to a new card with no interest for a certain window of time. This tactic can help you get a handle on exorbitant interest, buying you six months or a year to make payments without accruing interest in the background.

Negotiate with Your Creditors

Did you know your creditors may be open to settling your debts for less than the original amount owed? When lenders fear they may get nothing — like if you’ve fallen behind on payments — they could be open to making a deal with you that ensures they get at least a portion of your account repaid.

However, it all depends on how you approach the negotiation process. Some people decide to attempt debt settlement on their own. Others prefer to enroll in a structured program that helps guide them through the various steps and offers a professional team to handle the actual communications with creditors, as demonstrated by many Freedom Debt Relief reviews.

Do your research before deciding so you can understand all possible risks and rewards.

Overhaul Your Budget

Last but not least, you may be able to overhaul your budget even more than you currently believe you can. For instance, it pays to ask yourself whether you might inadvertently be making any of these budgeting mistakes:

  • Forgetting to account for variable expenses in addition to fixed expenses.
  • Leaving no wiggle room for fun, emergencies, etc.
  • Modeling your budget off of your ideal spending rather than your financial reality.

For many, budgeting is a great start, but not always enough to eliminate their debt. This is why it’s worthwhile to look into the strategies above as well.

Posted in: Personal Finance

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