How to Reduce Your Debt?

In the past year, the debt burden of Americans has grown significantly and continues to grow. According to the Credit Bureau, almost 15% of the borrowed population use most of their income to pay off debts.

If you find yourself in a difficult situation and feel that you do not have enough money to pay off the coming monthly loan payments, do not despair. We have collected for you several options for how to reduce your loan debt.

Payment deferral

The first and easiest way is to inform your lender about the problem you have and request a loan extension. It is important not to despair and do it on time. Since if you are late in payments, the debt will increase due to penalties and fines.

What you need to get a grace period:

• Write a statement to the bank indicating the reason why you cannot pay the loan as before. Such reasons may include: the birth of a child, demotion, job loss, serious and prolonged illness;
• Be sure to take your ID, documents to confirm deterioration of the financial condition, and a copy of the loan agreement.

After these actions, the lender can meet you halfway and offer the terms of the loan deferral – carefully study them. Thus, you can either reduce the monthly payment or cancel it altogether for a while, thereby gaining the opportunity to solve temporary financial difficulties.

Note: as the loan term increases, the overpayment increases. Therefore, it is worth using this method of solving the problem only if you are sure that the negative situation will be resolved soon. If financial difficulties are not expected to be resolved in the near future, this option for reducing loan debt will not work for you.

Loan restructuring

It implies changing the terms of the loan agreement in the direction of facilitating the conditions for the borrower. Most often, restructuring is applied to change the payment schedule. It is also possible to extend the repayment period, change the amount of interest, change the currency of the loan.

It makes sense to use restructuring only when you have made all the calculations and are ready to increase the loan overpayment as a whole to reduce the monthly installment. That is, the method is relevant for those who already have an almost hopeless situation or have a loan in foreign currency.

It will not be possible to reduce the amount of debt, however, there are advantages: you reduce monthly payments and you maintain a good credit score.

Loan refinancing

It involves obtaining a loan on more favorable terms from another bank and closing the current loan with the amount received. Loan refinancing allows to reduce the interest rate and extend the loan term.

This option is not suitable for those who already have several large debts. In such a situation, banks are extremely reluctant to approve a loan.

Debt consolidation

If you have about 5 existing loans from different lenders, debt consolidation may be suitable for you.

You can combine both collateral and personal loans and credit cards into one mortgage loan, which implies a lower interest rate and a lower monthly payment.

That can be a significant help in reducing loan debt since the final price and amount becomes “cheaper” than with other methods of solving the situation.

How to use:

• Apply for consolidation. To do this, you only need an ID and a document confirming that you own the mortgaged property;
• Wait for approval, receive the required amount and close the debts yourself, or entrust the transfer of funds to the creditor;
• Pay only one loan per month at a low mortgage rate.

At the same time, if you choose to pay off existing debts personally and confirm the spending of funds with the necessary certificates, you can count on a decrease in the annual interest rate.

Documentary evidence of monthly income to obtain the required amount is also not a stop factor for consolidation. With this method, you can attract up to 3 co-borrowers.

Reducing the amount of debt on a loan through the court

In this case, it will not be possible to reduce the rate, but it is possible to reduce the amount of the interest charged on the delay. The algorithm of actions is simple. You write a free-form application with a detailed description of the current situation and submit it to the judicial authority. This method can help if nothing else could be done before the start of the proceedings.

Also, don’t forget about insurance. If you did not neglect it when applying for a loan, then the insurance company can cover the debt to the bank, provided that your case falls under the terms of the policy. These are usually: disability due to injury, job loss.

Finally, when the situation becomes completely disastrous, you can file for bankruptcy. But it is better not to allow this since the loans will be closed by selling the debtor’s property. And only if the borrower has absolutely nothing left, he or she will be released from all loans.