How To Pay Down Debt Before A Recession Hits: What Borrowers Need to Know Going Forward
Since a recession is an economic situation where there’s minimal growth, people are usually more focused on their finances and how to properly manage them. Owing a debt in a recession can cause a lot of financial strain considering the economic state of the country. However, there are some strategies you can apply to help you pay off your debts before the recession hits.
Strategies to Help You Pay Down Your Debts
1. Paying Credit Card Debts
With credit card debts, the chances of interest rates going higher are almost inevitable. It can be pretty frustrating paying off a huge amount of cash in debts and still having to deal with huge interest rates. If your credit score is great, you can simply speak to your creditor and try to negotiate for lower interest rates.
2. Paying Personal Loans
When it comes to paying down personal loans, the strategy is to try replanning your budget. By cutting down on unnecessary expenses, you may be able to acquire enough cash to keep up with your debt payments. You can also source passive income streams that can bring in extra funds to cover these debts. Another option is to try moving your debt to a financial product with lesser interest rates that are not difficult to pay off. However, you can only do this if you have an excellent credit score.
3. Paying Student Loan Debt
It is not news that students with federal loan debts can worry less for now as there’s been a pause in payment till the 31st of August, 2022. Even though President Biden has also offered a promise of student loan forgiveness for millions of students, you should still work towards paying off your student loan debt. Although many student loan borrowers are also extending forbearance options, a smart move is to pay down your loan regardless. Pausing your payments only increases the amount of interest rate you have to pay eventually. While it seems great to wait till when you have enough money, pausing payment of your student loan debts will only cost you more in the future.
4. Paying Mortgage Debts
Even though mortgage interest rates are currently at a high with interests now being over 5%, you should still make sure you pay down your mortgage debts. Since mortgage interest rates are high, it might be difficult to get the cash to pay up. A tip to getting cash is to offer your home for a short sale. Opting for a short sale as a means of repayment is a lot better than having to lose the roof over your head completely. Since your home is a valuable asset, opting for a short sale might be a safer bet than losing the house completely.
Tips That Help If You Can’t Pay Off Your Debt
As sad as it sounds, it can sometimes be very hard to pay down your debts completely. If it’s becoming hard to keep up with debt payments, here are some useful tips
1. Replan your budget
This is one of the easiest and fastest ways to stay at the top of your financial game. Trim your budgets and cut off unnecessary spending or expenses that can be forgone. By doing this, you have a better sense of how much you have and where your funds need to be directed.
2. Communicate with your creditors
When you find yourself being choked with other issues, and unable to pay your debts, you should speak to your creditors. Let them know what’s going on and if possible, try to seek out an alternative repayment plan or a lower interest rate that works with your current situation.
3. Debt Settlement
This is usually done via a court-approved repayment plan. Here, you can pay your creditors a lesser amount than you owe, as long as you stick to the repayment plan. If you decide to go against this court-approved repayment plan, it greatly affects your credit scores and the chances of getting future loans will be very low.