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Managing your debt.

A large amount of debt may increase the amount of stress and worry in your life. Maybe your debt obligations are such that every dollar from every paycheck goes toward living expenses and paying minimum balances on debt with no room for savings. It is beneficial to look at eliminating debt in order to free up money for other uses.

Create Your Own Debt-Reduction Plan

A debt-reduction plan requires careful analysis of your expenses and a disciplined approach to pay down your debt. When you identify your debt, you can start paying it off in different ways. You might choose to start with your lowest balance to feel the gratification of eliminating one obligation from your list. Or you could choose to start with the debt carrying the highest interest rate because the quicker you pay that off, the more money you will save in the long run. In the meantime, you’ll continue making minimum payments on other debts while you work to pay off one in full.

After one debt is paid off, it's important to take the amount of money you were paying and apply it to the next debt obligation on your list. This approach to paying off debt keeps you focused on the task at hand rather than incurring more expenses. You'll see yourself progressing steadily toward debt-free status.

Consider a Debt Consolidation Loan

You may be able to take out a loan to cover all your debts and then pay off that loan in one payment, often at a lower interest rate than what your debts carried individually. However, you should beware of the false sense of security that comes with this approach. You need to be mindful not to run up new debt on your credit cards simply because your card balance is $0. Remember, you have shifted the debt to the loan and it is not eliminated until you have paid off the loan.

Debt Settlements When Collectors Call

Debts that are overwhelming you and can't be paid back could be eligible for a debt settlement in order to stop the collection agencies from calling you every day. This approach involves negotiating with your creditors over a settlement amount that is lower than the amount you actually owe. While a debt settlement reduces the amount you will pay back, it comes with an aggressive timeline for repayment. You may have only 24 months to pay off 30% to 50% of your original debt owed. Consider whether this option is better than declaring bankruptcy, and if it is, be prepared for some stressful months when you're tightening your belt significantly to meet the terms of your settlement.