Simply Put - What is Debt?

Before we talk about getting out of debt, let's first establish what debt is. In short, debt is when you owe money to someone else. This can be in the form of a loan from a bank, credit card balance, or even money you might owe to a friend or family member. Regardless of where the debt comes from, it needs to be paid back with interest.

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What is Interest?

Interest is simply the cost of borrowing money, and it's expressed as a percentage of the principal (the amount of money you borrowed in the first place). For example, let's say you have a credit card with a $1,000 balance and an annual percentage rate (APR) of 15%. This means that your interest charge for the year would be 15% of $1,000, or $150. And that interest charge would be added to your principal balance, so you'd end up owing $1,150 on your credit card at the end of the year.

Now that we know what debt is and how it accrues, let's take a look at some common ways to get relief from it:

Debt Relief Strategies That Actually Work

There are several different methods you can use to get out of debt, but not all of them are created equal. Some methods are more effective than others, and some come with certain risks that you should be aware of before moving forward.

Here are three common debt relief strategies and what you need to know about each one:

Debt Consolidation

Debt consolidation is when you take out a new loan to pay off multiple smaller debts. This can be an effective way to get out of debt if done correctly, but there are some potential pitfalls that you need to be aware of. First and foremost, consolidating your debts will likely result in a higher monthly payment. That's because you're essentially paying off multiple debts with one larger loan, so your total monthly payment will be higher than it was before. Additionally, consolidating your debts into one loan may give you a lower APR initially, but that rate will almost certainly go up after a period of time. If you're considering consolidation as a way to get out of debt, make sure you understand all the terms and conditions before signing on the dotted line.

Repayment Plan

A repayment plan is when you negotiate with your creditors to make smaller monthly payments over an extended period of time. This can be an effective way to get out of debt if your creditors are willing to work with you, but there's no guarantee they'll agree to a repayment plan. If they do agree to work with you on a repayment plan, keep in mind that it will almost certainly extend the length of time it takes you to pay off your debts and could result in additional fees and charges.

Do-It-Yourself Debt Relief

The final option for getting out of debt is doing it yourself. This involves creating a budget and coming up with extra money each month that you can put towards paying down your debts. While this method does require some discipline and effort on your part, it's often the most effective way to get out of debt because it allows you complete control over your finances. Just be sure that before you start making extra payments on your debts, you check with your creditors to make sure there aren't any prepayment penalties associated with doing so.

No matter which method you choose to get out of debt, remember that it won't happen overnight. Getting out of debt requires both time and effort on your part; however, the end result will be well worth it! By taking steps now to get rid of your outstanding debts, you'll be on track for financial success in no time!