3 Tips for Rapid Debt Elimination

There is no quick fix for debt elimination. Debt settlement companies that offer to relieve your obligations to repay debts are often over-selling their services. The fact is: a debt is a legal contract, and it cannot be eliminated without a drastic step. There are some unique strategies, though, that can help you eliminate debt much faster than traditional means would allow.

#1 Make a Principal Payment

The majority of your monthly payments at the beginning of your loans go toward interest. This is because of a system lenders use to prevent you from paying off the loan early. Instead of applying interest evenly across the entire length of your loan, they will factor in the the entire interest, and then allow you to pay the interest first. If you have 5% interest on a car loan and make a payment of $250 a month, this does not mean you pay $12 to interest and the remainder to principal. In fact, nearly the entire payment could be going toward interest if you are in the first few years of a five or more year long car loan. Contact your lender to ask about making a payment completely toward the principal sum you owe. This is a great way to spend a bonus, birthday gift or other extra income.

#2 Buy Down the Interest Rate

You may not be as worried about your total debt as you are about your monthly debt payment. This is particularly true if you know you are nearing an expensive time in your life, like furnishing your new home or having a child. In this case, having lower monthly payments for some time may be helpful, but you do not want to make your loan longer. You can ask to buy down your interest rate. Your lender may be willing to cut you a deal if you agree to pay a lump sum up front toward your interest. You will pay less overall toward interest, and you will even see a reduction of monthly payments for one to three years. It may seem unproductive to pay down interest instead of principal, but the effect is relatively similar on the total cost of your loan, and your monthly payments will be lower in the short term with this option.

#3 Settle the Debt

You will need a lump sum of cash to settle your debt. If you do not have one, it is possible to take a loan, but you will still be in debt in this case. Contact your lender or have a debt settlement company contact the lender on your behalf. Debt settlement companies can offer get better deals, but they will charge you a fee for their services, which can be counter productive. In either case, the lender must be willing to negotiate a lump sum payment that is less than the remaining sum you owe on the loan. This is rarely lower than the principal debt. However, it may represent a significant savings in interest rate that can drastically reduce your total debt in one effort.

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