If you’ve found yourself in a situation where you have a lot of consumer debt such as car loans, home equity loans or credit card debt, you’re not alone. As the unemployment rate has risen consumers have becoming increasingly concerned about the level of debt that they have and are working quickly to deleverage their lives.
Some consumers that have a substantial amount of debt related to their income have opted to file bankruptcy, but that’s too extreme for most consumers. Some consumers might turn to companies which advertise online or on TV and advertise debt reduction nor debt management services, but sometimes these services charge high up-front fees and do little to reduce someone’s over-all debt levels.
Others will adopt financial plans promoted by popular personal finance gurus such as Suzie Orman, Dave Ramsey or Clark Howard. They often suggest that debtors work extra and focus on a single debt at a time. Some such as Dave Ramsey would recommend that debtors snowball their debt, listing their debts from smallest to largest. With that method, borrowers put all of their extra focus on their smallest debt and pay minimum payments on the rest. Once the first debt is paid off, debtors take the payment they were making on the smallest debt and add it to the payment of the second smallest debt along with any other money they can scrape up. They suggest repeating that process until one’s consumer debt is paid off.
Others suggest that consumers pay off their highest interest rate debt first, suggesting that the mathematics works better. Yet others, such as Suzie Orman, suggest that you should build a large emergency before working to pay off debt because of the uncertainty in the economy.
Regardless of what method you use, you may want to work to reduce your interest rates by surfing your high interest debts such as credit cards to lower interest rate loans. Peer to Peer lending sites such as Lending Club and Prosper.com have become an increasingly popular means of getting debt consolidation loans which allow borrowers to their interest rates and pay more money toward the principal.
