How to Pay Down Unsecured Debt
30 percent of Americans report that they have credit card debt, one of the most common types of unsecured debt. Unsecured debts are any debts not backed by an asset, like student loans or credit card bills. Secured debts are those like a car loan, where the bank can repossess an asset – in this case, the car – for delinquent payments.
Lenders will begin collection attempts after the borrower stops paying in the form of reminders, emails, letters and phone calls. After 30 days, the lender can report nonpayment to a credit reporting bureau which in turn will affect the borrowers credit score, leading to higher interest rates and difficulty getting future loans. Paying off debt is daunting. Here are a few ways to start paying down unsecured debt.
1. Pay off the highest interest rate debt first
If you have several forms of unsecured debt (for example, student loans, medical bills and credit card bills), the highest interest rate will usually be on your credit cards. Focus on the highest interest rate debt first because this is the one that can grow the quickest.
2. Make the minimum payment on all your debt, and pay more than the minimum if you can
If you’re not making the minimum payment on all of your debt, you’re hurting your credit even more. At the very least, pay the minimums and if you can, pay more than the minimum, focusing on the highest interest rate debt first.
3. Consolidate all credit card debt onto one card
Take advantage of special offers and credit cards that allow balance transfers. If it’s possible, transfer the balance of your higher interest rate credit cards to a lower interest rate credit card. Consolidating all credit card debt onto one card will allow you to focus on one balance at a lower interest rate.
4. Consider bankruptcy
The principal goal of filing for bankruptcy is to wipe out all unsecured debts, eliminating the borrowers obligation to repay the debt. In certain situations, filing for bankruptcy might make sense for the borrower.
It’s not unusual to carry some debt – 8 out of 10 Americans are in debt according to the Pew Charitable Trusts. However, when debt becomes insurmountable, it’s invaluable to seek guidance from those who can help. If you’re concerned about your unpaid debts, seek a free consultation from a Little Rock bankruptcy attorney, like the attorneys at Rainwater, Holt & Sexton.