The 1-2-3 Guide to Manage Growing Debt

Key takeaways

• Start with organization. You can’t formulate a plan until you know what you’re up against.
• Consolidate and renegotiate. For many people, a single, predictable monthly payment can be a good way to relieve the mental burden that debt can take on you.
• Be ready to make changes. Getting into debt was easy. Getting out is going to be harder and require some sacrifices.
• Leverage your assets. A home equity agreement (HEA)  may be able to help by providing a cash infusion in exchange for some of your home’s future equity.
• Stay focused. The pain of paying off debt is a temporary state. You will eventually finish and reap the rewards of a better financial history and improved credit score.

1. Get organized

If you’re starting to get serious about paying down your debt, you probably aren’t aware of the full scope of it. The first thing to do will be to dig into the numbers.

This process may get uncomfortable. It’s important to keep perspective: the first time you organize your debt is also the most uncertain you’ll ever be about this situation. After this step, you will have a solid grasp on what you owe to whom, and you will have formulated a plan on how to deal with it.

Convincing yourself to get started is the hardest part. Once you’ve taken control of the situation, you’ll be able to enjoy the process of working out of debt, knowing there is light at the end of the tunnel.

The information you need

For each debt you owe, you’ll need at least the following information:

• Amount
• Creditor’s name
• Interest rate
• Minimum payment
• Delinquency status

A great way to organize this information could be on a spreadsheet:

You can also organize this in onto a notepad, or write it down by hand. It doesn’t matter how you do it, as long as you know the key facts and have a way to quickly reference what you need.

2. Negotiate and/or consolidate

Many creditors may be willing to work with you to get the debt paid without resorting to the legal system or third-party collectors.

3. Stay in touch with your creditors

If your debt is new, contacting the creditor right away is the absolute best thing to do. You can set up payment arrangements that involve little or no interest or fees. If you wait for them to contact you, you’re now in a pinch.

If the debt is old, creditors may be more willing to settle for a lower amount. This is especially true if your creditor isn’t the original owner of the debt. In this case, they probably purchased the debt from the original creditor at a lower rate or agreed to collect the debt in exchange for a percentage of any payment you make.

Managing your debts can become difficult and stressful if you owe money to more than one creditor, such as with credit cards. In such a situation, consolidating your debts under a single loan with a (hopefully) lower interest rate and one payment may be beneficial.

Though debt consolidation may make the mental strain easier and lead to lower debt thanks to a better interest rates, it’s not a magic bullet. You’ll still owe the debt, but it won’t be as unwieldy as before.

Some pros and cons on debt consolidation

Pros:

• One large monthly payment can be easier to handle, and less stressful, and take less psychological toll than several small payments to different creditors, all with different due dates.
• Structure is comforting. A concrete payment schedule may ease your mind.
• Lower interest rate. The point of debt consolidation is to get a loan at a good interest rate – lower than the rate on your existing debts – and then pay off the existing debt. With good credit, you may be able to take a chunk out of your balance with this step alone.

Cons:

• Bad credit will hurt you.
• You still owe the same debt. It just looks different.
• Application fees and time wasted could mean you’re worse off than before if denied. Debt consolidation loans usually have origination fees that amount to 1-5% of the loan amount. Be sure you understand the fees and that the consolidation still makes economic sense with them included.
• Debt consolidation isn’t the answer for everyone. If you’re having a very difficult time making minimum payments on your existing debts, for example, it likely won’t help.
• Debt consolidation is a financial product, so you might want to look around for a good provider and the best rate you can get if you’re considering a loan. Don’t pay more than you have to!

3. Unlock your home’s value with a home equity agreement

If you own a home and have accumulated significant equity, another option may be available to you. You could take advantage of Unlock’s HEA.  It’s designed to provide cash today in exchange for a portion of your home’s future value. You can then use the funds to pay down/off your debt.

Unlock your future equity today

In just a few seconds, we can estimate how much cash we can pay you today in exchange for a percentage of your home’s future equity.

Your property stays with you

With an Unlock HEA, you maintain ownership of your property. You continue to live in your home as usual and are responsible for property taxes, homeowners insurance, and homeowners association fees, if applicable.  We will share part of the equity in your home when you settle the agreement or sell your home.

The term is flexible

The Unlock HEA term is for 10 years. You can end the agreement at that time, when you sell your house or if you decide to buy back your equity during that decade. You can do this all at once or through partial payments during the term. 

Our HEA doesn’t require monthly debt or interest payments. It’s a truly flexible financial tool, perfect for homeowners who need access to the value of their equity.

The process is its own reward

Paying down debt doesn’t need to be stressful or exhausting.

The joy of watching your balance fall each month will peak as your debt subsides and you start to feel the burden melt away. This will reinforce your choice to stick to your budget and make it easier to stay committed to your plan. 

Don’t lose hope: you can do this. We hope this article helped you devise a plan to get off the debt treadmill. 

Want to learn more about how our HEA can help? Get started today.