The Biggest Mistake People Make When Paying Off Debt

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The Biggest Mistake People Make When Paying Off Debt

All the big financial gurus don't tell you about this step when they tell you to pay off debt.

I wish I knew why because it reduces your overall debt load and how quickly you can pay it off.

Everyone should be NEGOTIATING their bills and their debt before you ever pay an extra dime.

Yes, you can do that. 

A Different Perspective On Debt And Loans

What is debt? It's an IOU. You owe money to someone or some organization.

Whose debt is it? It's YOURS.

Imagine your debt as a bunch of IOUs in a silver brief case handcuffed to your wrist.

Here's the thing a lot of people don't realize. You can take that debt somewhere else as long as another person or organization agrees to take it on...and they do it ALL THE TIME.

Example:

If you have $10,000 in debt on a credit card getting 22% interest, you can call that credit card company and ask them to reduce your rate.

About 55% of the time, they will do it on the spot if your credit is decent. 

If they don't, then you can take that IOU anywhere that will lend you money.

A lot of credit cards will give you 0% APR for 12 months if you transfer a balance.

Here's the golden question...why would they do that?

Because they play the numbers! Creditors know that the masses won't pay them off in time and they'll make money in the long run.

But you can beat the statistics by being disciplined and getting the debt paid down. Even if you only got half of the $10,000 paid down in that 12 month grace period, that's hundreds of dollars saved in interest. 

Another option is going to a bank and getting a personal interest loan for $10,000 which is usually around 8-13% depending on different factors, which is still a 40-60% reduction in interest and will instantly lower your payments.

When you start viewing your debt this way and begin shopping it around to anyone who will take it on, it becomes what I like to call a "game of loans" that can save you thousands of dollars on the debt you owe.

Four Places To Start

Negotiating your debt and bills down can be an effective way to get rid of financial stress and free up some of your budget. Here are four ways you can negotiate your debt and bills down:

  1. Contact Your Creditors

The first step in negotiating your debt and bills down is to reach out to your creditors directly. You can do this by calling or emailing them and explaining your financial situation.

It's very important to be honest and transparent about your financial struggles, as this will increase your chances of success.

When speaking with your creditors, ask if they are willing to reduce your interest rates or if they can offer you a payment plan that fits your budget. Many creditors are willing to work with you to find a solution that benefits both parties.

To increase your chances of success in negotiating with your creditors, it's important to:

  • Be persistent: It may take several attempts to get in touch with the right person or to reach an agreement that works for you.
  • Be prepared: Have your financial information on hand, such as your income, expenses, and outstanding debts.
  • Be polite: Even if you are frustrated, it's important to remain calm and polite during the negotiation process.
  1. Seek Professional Help

If you are struggling to negotiate with your creditors on your own, seeking professional help from a debt counseling agency may be beneficial.

These agencies can provide you with guidance on how to negotiate with creditors and create a debt management plan that suits your needs. They can also negotiate on your behalf with creditors to reduce your interest rates or payments.

Don't get scammed and follow these steps to find a reputable debt counseling agency:

  • Ask for recommendations from friends, family, or financial advisors
  • Check online reviews and ratings of debt counseling agencies
  • Talk to accredited agencies by reputable organizations such as the National Foundation for Credit Counseling or the Financial Counseling Association of America
  1. Consider Debt Settlement

Debt settlement involves negotiating with creditors to pay a lump sum that is less than the total amount owed. This option may impact your credit score, but it can be a good solution if you have a large amount of debt and can't afford to make regular payments.

To negotiate a debt settlement, you should:

  • Determine how much you can realistically afford to pay as a lump sum.
  • Contact your creditor and offer to settle the debt for the agreed amount.
  • Get the agreement in writing, and make sure you understand all the terms and conditions before signing it.
  • Make the payment as soon as possible, as failing to do so may result in the creditor canceling the agreement.
  1. Cut Expenses

Another way to negotiate your debt and bills down is to reduce your expenses. This can be achieved by looking for ways to cut back on non-essential expenses, such as eating out or subscriptions, and redirecting that money towards paying off debt or bills. You can also negotiate with service providers for lower rates or switch to cheaper alternatives to save money.

To cut your expenses effectively, you should:

  • Make a list of all your monthly expenses and prioritize them based on necessity.
  • Look for areas where you can cut back on expenses, such as entertainment or dining out.
  • Negotiate with service providers, such as your internet or cable company, for lower rates.
  • Shop around for cheaper alternatives, such as insurance providers or phone plans.

This one of the key parts of my 7-step process in the Foundation course to create a financial plan, get out of debt fast and automate your finances to ensure you are successful.

You can read more about the details of the course here if you are interested in a proven system to help you take control of your money and your life.

 

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