Certain debt management companies charge a fee to create a budget, help lower overall debt, or otherwise help you get your debt under control. If you have just a little debt, you may be able to pay it back without anyone’s assistance.
If you have good credit and only a few hundreds of dollars in debt, you may be able to pay it back in a few weeks with some planning. A personal loan or an interest-free credit card could pay off your existing debt and save you time and money down the road.
Credit cards have the highest interest rate of all debt types. Interest rates are usually between 20 to 30 percent, but some cards have rates into the low forties. When you pay your card each month, you must pay the interest charges before your payment touches your principal debt.
The longer it takes for you to pay off the principal, the more you will end up paying in interest charges. If you only pay the minimum monthly payment, it could take you years and thousands of dollars to pay off your debt.
Similarly, paying the minimum amount on multiple accounts is costly and does little to positively affect your debt. Consider the following scenarios:
- You have a total debt of $10,000 that is equally dispersed on four cards with interest rates at 20 percent. Each card has a minimum monthly payment of $50. It would take 109 months and more than $11,000 in interest charges to pay back the debt.
- You have a total debt of $10,000 that is on a personal loan with a 6 percent interest rate. By paying the same $200 each month, your debt will be paid in 58 months with only $1,536 in interest charges.
If your debt is not from credit card accounts, then you may need to speak with the lender directly. For example, you may need to work with the Internal Revenue Service (IRS) to pay back any back debt.
Declaring bankruptcy should be your last option. It ruins your credit score and does not eliminate your debt. In almost all cases, you will still need to pay your debt after declaring bankruptcy.