Debt can be a tough thing to work through. If you fall behind on payments and run into trouble with your credit score, you may only get one chance to recover. It’s important to know your plan, take the right steps, and readjust so that your work not only gets you out of debt, but into a position to rebuild your finances. Today, we look at five key ways to optimize your recovery from debt.
1. Know The Road
Your recovery from debt is only truly possible in one of a few ways. For each creditor who you are indebted to, you can:
- Pay back what you owe in full
- Attempt to negotiate a settlement with the creditor
- Declare bankruptcy
- Apply for a Progressa loan
The goal is to be able to take the first route whenever possible. Though this is not possible for all debtors, it is by far the best way to set yourself up for financial recovery in the future. Why? Simply put, the act of repaying your debts rebuilds your credit outright. It puts you back on the path to being able to take advantage of financial instruments like loans, that can also be used to pay off debts with higher than average interest rates.
2. Take Stock
Once you’re in debt, you will have to know the remaining parts of your financial plan inside and out in order to make the changes you need. It’s like doing a workout: if you just go in without knowing your limits and needs, you won’t improve as much as you could if you knew all the data about your existing strengths and weaknesses.
Some important things to know include:
What are your remaining assets?
How much money do you owe?
How much income do you bring in each month?
How much do you spend?
What is your credit score?
Some debts are larger than others, some are more time-sensitive, and others have interest rates that differ. Knowing which ones to target first is critical. Most debt advisors will recommend that you try to clear away debts with the highest interest rates first: this is because you will immediately be saving more money on interest rate payment costs, and this money can be transferred back into your repayments on other debts (as well as your own savings.)
4. Take Action
You need to start recovering right away after a financial disruption, challenge or disaster. The longer you wait, the harder the rebuilding process becomes. Some debtors are convinced that their problems will disappear after the seven-year statute of limitations on their debts expire: while this is technically possible, it only means that these debts can be bought by other agents who will try to recover it for their own financial gain.
5. Keep Saving
There’s not very much to be gained in exhausting every single financial resource you have in the fight against debt. Running out of cash reserves while trying to repay debts will most likely lead to the use of even more credit, which puts you back where you started. Even if saving a modest amount slows the repayment of your debts to a degree: so be it! The savings you make today might be your platform for regrowth tomorrow.