Debt Relief Strategies that Work

Let’s face it, living with debt stinks. Often, the money left over after the bills are paid, including credit card bills or other debt, is minimal. Instead of taking a vacation to Aruba or socking away a nice chuck for a rainy day, every extra dime gets sucked down the drain in the form of debt payments. But there is a silver lining; paying down debt will eventually lead to being debt-free.

So how do you get from point A (in debt) to point B (debt-free)?

There are many debt relief strategies to choose from and due diligence is required before selecting one that will work best for your situation. However, a few tried a true methods seem to outshine the others.

The Snowball Approach

Dave Ramsey’s Snowball approach is an effective and motivating way to pay off your debt one bill at a time. The idea behind this method is to pay off the smallest debt in its entirety while making the minimum payments on all other debt. Once the smallest debt is paid in full,  you move to the next smallest debt and so on, working your way through your bills from smallest to largest. The biggest benefit of this strategy: It’s motivating to see bills eliminated one at a time encouraging the bill payer to keep up the good work.

The Avalanche Approach

Similar to Ramsey’s Snowball approach, is the Avalanche approach to paying  off your debt. However, the difference is the focus; pay off the highest interest debt first. For instance, if you have three credit cards you are paying off, you’d start by making larger payments to the card with the highest interest rate while still making the minimum payments to the other three cards. Once the highest interest rate card is paid in full, you move to the next highest interest rate card and so on. The benefit to this strategy: It’s very effective in minimizing the amount of interest you will pay over time.

The “I’ve Fallen into a Debt Hole and Can’t Get Out”  Reality Approach

Feeling overwhelmed by the massive amount of debt you’ve accumulated, you can barely make the minimum payments, let alone try making “extra” payments on your debt (which the two previous methods require.) The reality approach requires more effort and a reality check. It’s time to sit down with all of your debt and add it up. Since you are unable to make extra payments, you are left with a few options that require more leg work: A.) Call your creditors and try lowering the interest rates so that you can pay off a little extra each month, B.) Apply for a consolidation loan at a lower interest rate, or C.) Get a second job. The benefit to this strategy: It gets the job done and the debt paid off.

Becoming debt-free is possible, but it takes work. If you’re still unsure which approach would work best for you, do your homework and create a plan.

Have you used one of these methods to become debt free? Have you encountered roadblocks to getting there?