High-Interest Debt Can be Challenging, Here is How to Tackle it
By Space Coast Daily // October 29, 2019
When lenders borrow you money, interest is the way by which they secure their risk, and also a little price to pay for coming through for you when you need funds.
But, sometimes, the interest charged on some loans, cards can be so heavy that borrowers would wish they never received the money in the first place.
Indeed, some of us have combated debts at some points in our lives, but the few of us who have had to deal with high-interest debts can attest to the special kind of difficulty that comes with these types of debt.
Imagine making a hefty monthly payment, only to see your principal balance going down sluggishly just because a large chunk of what you pay serves as the interest.
Doesn’t sound like a good scenario, right? Such is the challenge faced by people tackling higher interest rates debts, including higher interest credit card, expensive auto loans, and mortgages.
Though paying off higher interest rate debts quickly is a good way to save you from the problem and help you save money in the long run, sometimes, it may not be the best way of combating the challenge.
So here are some methods for you to use whenever you find yourself in this position.
Request for a lower interest rate
Yes, it can be that easy. Sometimes, all you need to get out of the challenge you are facing could be a simple negotiation procedure.
Reach out to them and let them understand your position. Sometimes, the high interest you are paying could be a result of your bad credit score; so immediately you see that your score is approaching an enticing number; you can set up a meeting with them.
Now here’s the catch. Lenders will not just be willing to back down on a previously agreed rate just because it’s you who’s asking, which means you need to offer something in return. In this case, an agreement to pay off the principal amount earlier than agreed.
For instance, if your loan remaining loan term is, say, two years, and you approach them with this offer stating that you are ready to pay off the remaining debt within a period of 6 months to 1 year, then, there is a big chance they might be willing to accept your deal of a lower interest rate.
After all, you are cutting their risk from long term to a very short amount of time. Sometimes, to aid your negotiations, you may need to tap into some government-backed debt negotiation schemes like an IVA agreement, to ensure that your creditors may treat you with more leniency.
Transfer the balance to a low-interest rate card
If your high-interest rate debts come in the form of credit cards, why not try transferring the balance to a zero or low-interest rate card?
A few interest-free or low-interest months could make a world of difference in your balance. With an excellent credit score, chances are you may qualify for a good balance transfer interest rate.
Tackle the smaller debts first
Imagine having to deal with both small and hefty debts, low-interest rate, and high-interest rate debts all at once? While the difficulty of the high-interest rate debt could tempt you to pay it off first, sometimes, it is better to leave it and tackle the smaller debts first.
Paying off some smaller debts would free up money to put toward your larger, high-interest rate debts. To do this, make a list of all your debts, and categorize them based on which can be paid now and which must wait. After this step, start paying off the smaller ones.
Wait it out
If you cannot squeeze out any extra cash from your already scheduled budget and you don’t seem to have an alternative income stream too, you may have to halt your debt-free goals for a few months.
For now, stick with making the minimum payments on your cards, so that you don’t ruin your score.
As for the high-interest debts; yes, you’ll be wasting money on interest, but if you cannot afford to pay off your high-interest rate debt right now, then you simply cannot afford it.
Wait a few months and reassess your budget to see what expenses you can forego to improve the amount of cash you have available.
Even if your creditors are chasing after you with a capquest debt collector or a PRA group, let them know that you are currently incapable of meeting your loan terms, and if they wouldn’t give you a break, you can invoke the IVA scheme. But before you do that, be sure to shop around for the best IVA companies near you.
Increase your payment
If you are tackling a high-interest rate debt, now is not the time to stick with minimum payments because the bulk of your monthly payments goes toward interest; instead, you have to pay as much as you can every month so that you can start to make noticeable progress toward paying off high-interest rate debts.
Remember, the more you pay, the smaller your principal balance becomes.