If you want to figure out how to fix your bad debt, you have to figure out how much you owe. List all of the outstanding balances that you have, then determine which of these are not increasing your income or earning potential. That’s your bad debt, and that’s what you will need to pay off as soon as possible.
How to Fix Bad Debt: Strategies
The task to fix bad debt can feel extremely overwhelming. To make it manageable, you’ll need a strategy. Here are just a few:
1. The Debt Snowball Method
To use this highly motivating strategy to fix your bad debt, rank your debts from smallest to largest. Figure out how much of your monthly income you can allocate to paying off debts and subtract your required minimum payments.
Anything left over will go to your smallest debt. Once that is paid off, you take the amount you’ve been paying and apply it to the next smallest debt.
2. The Debt Avalanche Method
With this strategy, you will work to fix your bad debt by making minimum payments first. But instead of using any extra to pay off your smallest balances, you attack the balance with the highest interest rate. Once that is gone, you pay the one with the next highest interest rate.
Mathematically, this method will save you more than the snowball technique, since you are eliminating interest more quickly. If your highest interest accounts have large balances, though, you will have to wait to see results.
3. Negotiating With Creditors
If you want to fix your bad debt problem, it can be difficult if you’re having trouble paying your bills. Call your creditors and see if they can help. Many creditors will work out plans with debtors who want to make good on what they owe. They may even give you a temporary break on interest accumulation so that you can pay off more of the principal.
How to Fix Bad Debt: Consider a Sale-Leaseback Program
Your home is your castle. Long may you reign.
You can also fix bad debt in unexpected ways. If you’re a homeowner and have trouble meeting the demands of your mortgage, consider a sale-leaseback program.
When you have equity in a home, the income from its sale can get you out of financial trouble. But that tends to mean leaving your home which can make a difficult situation feel even harder.
A sale-leaseback solution gives you the best of both worlds. You sell your home, which means you convert the equity. But with a sale-leaseback, you can stay in your home as a renter.
Don’t let your bad debt paint you into a corner. Check out these options to help you fix your bad debt. Consult with a financial advisor to learn more about your options.