Creditors will come for you if you’re not paying back the money you owe them and it can get nasty.
Getting out of debt should be your first priority.
While it’s a good idea to have some savings on hand, if you have many creditors to pay, it’s important to pay them off as quickly as possible.
Ways To Pay Back Creditors First
If paying back creditors first is the way you want to get out of debt take the initiative to start the process.
Below are a few ways that you can accomplish working towards debt freedom.
Develop A Monthly Budget
The first step is to see where you are in terms of financial health by using a few tools.
This means either developing a budget or re-evaluating the one you have used.
Pay Back Your Creditors By Reducing Expenses
Look for ways to cut costs in your budget by using it for a minimum of 3 months.
Here are some of the best ways to reduce your expenses.
- Ask your cable and cell phone providers for lower plans. Why I Chose Freedom Mobile As My First Provider In Canada.
- Reduce the number of times you dine out.
- Pack your lunch instead of buying it at work or on the way to work.
- Carpool to work, ride a bike, take the bus, walk, e-bike
- Hold off on expenses like clothes, unless they are a necessity.
By following these steps, it can help you save some money.
From there, you can take that additional money to manage your debts.
Prioritize Paying Back Your Creditors – Snowball Plan
This is where you evaluate each lender you owe money to and develop a plan to pay them off as quickly as you can.
The most effective strategy to do this is the debt snowball plan.
This is where you pay off the creditor with the smallest amount owed first while making regular payments to the rest of your lenders.
Once you pay off the first debt, you move on to the next one and continue this process until you pay off all of your bills.
This is an excellent way to build momentum and help you gain the confidence needed to get out of debt.
Negotiate Debt With Your Creditors
If you are delinquent on an account or have a high-interest rate, it’s important to contact that lender and see if there are willing to reduce your rate and eliminate fees.
In many instances, they will be happy to work with you.
If you have enough cash on hand, see if you can make a settlement, which is a lump sum payment to pay off the balance.
In some cases, the creditor may be willing to settle for less than the full amount owed.
An even better idea is to contact a debt settlement firm, which can negotiate with your creditors on your behalf.
Often, creditors will settle the debt for substantially less than what you owe.
It’s important to receive this agreement in writing.
Furthermore, if the debt they forgive is more than $600, you may have to pay taxes on it.
Lastly, this will hurt your credit score some, but it will help you get out of debt and that’s the goal.
One of the best reasons tackling debt is so important is that it helps you develop sound financial behaviors.
When you do this, you find ways to adjust your lifestyle to fit within your budget.
Saving Money After Debt Is Paid
This means once you pay off your creditors, you can take that additional money you save monthly and place it into a high-interest savings account.
We use both Simplii Financial and Tangerine bank for our savings accounts because they are two of the best in Canada.
As a result, even after you pay off your bills, you will see the benefits of changing your habits.
Ultimately, while it is a good practice to save, paying off your bills is often more important.
By developing a budget and making some sacrifices, you can free up some cash to pay your creditors.
Furthermore, by assessing your situation and determining the best course of action, you are taking steps that will result in a debt-free future.
Guest Post By: Jeffery Sterner is a blogger with Debt.org, an organization that helps consumers prevent and get out of debt.
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