If you’re trying to get debt relief during a recession, the good news is you have plenty of options. Whether you’re being bothered constantly by debt collectors or you simply want to reduce your total debt, there is likely a perfect payment schedule or debt settlement that’s right for your particular financial scenario.
To help you figure out which option is best for reducing your existing debts during a recession, we’ve put together this article. Read on to learn how you can reduce late fees, slash interest charges, and get collection agencies off your back.
Deciding How to Pay Down Debt During a Recession
Review the Interest Rates of Each Account
The first step to narrowing down which debts to pay during a recession is looking at your interest rates.
Credit card accounts can easily have rates reaching 30% or higher, making goals of becoming debt-free fast difficult. The quicker you can pay off high-interest debts, the stronger your financial position will be for riding out a recession.
How is the Interest Charged?
After listing which debts have the highest interest rates, it’s time to prioritize by the way they are charged. Simple interest debt like car loans is easier to pay off in comparison to credit cards. That’s because, with credit card debt, the interest is charged on the entire balance, including interest charges from the preceding months.
In other words, you pay interest on interest with credit cards, but simple interest loans only charge you once. This is why paying credit cards down first is almost always the smartest decision, especially when a recession is in full swing.
High Fees and Penalties
Plenty of credit card companies charge $35 or more if your balance goes over your credit limit. When you default by missing payments or exceeding your credit limit, credit card companies might even increase your interest rates.
If you’re being charged huge fees, debt settlement is something a debt settlement company can help you with.
Reducing Your Tax Liability
Some types of interest are tax-deductible, which could save you considerable money on your taxes each year. Home loans and business loans are two examples of this type of debt. If your tax liability could be significantly impacted by the debt, you might want to prioritize paying other debts down first in a recession.
The decision comes down to the math, which is best left to a tax professional. Essentially, any savings from paying the debt down will need to offset the loss of tax savings.
How Might Debt Relief Impact Your Credit Scores?
Paying down debts will have an impact on your credit report one way or another. If you opt for a debt settlement program, the changes could lower your credit score for a number of years. Conversely, if you pay off credit cards through credit counseling, the impact will likely be less harmful.
Be sure that the debt relief solutions you’re looking into align with your overall financial goals for the next five to 10 years. Going with more aggressive debt management plans like bankruptcy could hurt your ability to gain financial freedom for the next decade, so be careful to think long-term.
Debt Relief Considerations By Account Type
Student Loan Debt
Some types of unsecured debt still charge interest in a simple structure rather than revolvings, such as student loans, personal loans, or business equipment loans. Typically, the required payment on this debt each month remains the same, reducing the balance on a predetermined schedule that’s fixed in term length.
This is the opposite of revolving debt that can continue for decades if only the minimum payment is made each month.
Auto and Home Loans
Debts that are backed up by a physical asset such as a car or a house are called secured debts. This kind of debt could be secured by anything from a home, truck, RV, or boat.
When the loan is taken out, a lien is put on the asset, making it legally possible for the lender to reclaim the asset if you stop paying the debt. Because of this, it’s best to prioritize paying these debts over credit cards if you don’t have the money to pay both.
Credit Cards and Revolving Debt
Credit cards are a type of unsecured debt. That means there isn’t a physical item for the lender to legally reclaim to recuperate the debt if you default on it. Because of this, interest rates are usually far higher than debts with a physical asset to back them. With unsecured debt, the balance can rapidly increase beyond your ability to pay during a recession.
One exception to this kind of debt is a home equity line of credit, which is a secured loan that charges interest like a credit card account. Because these debts are backed by your home and have higher rates, it’s wise to prioritize paying these types of debt down during a recession.
Choosing the Best Debt Management Plan
Balancing saving money on your total monthly payments, tax implications, and interest charges is far easier with the help of debt settlement services. Whether you choose credit counseling agencies or other debt settlement companies, chopping down your unsecured debts during a recession is often the most advantageous route.
Smart money management can help relieve your debt burdens when the economy turns south. So how do you know the debt relief program you’re thinking about will provide the financial protection you’re hoping for?
Getting Help from Debt Settlement Companies
The national debt relief industry is massive. Finding the perfect debt settlement companies can be tough, but doing your research is worth the time. Looking for companies that are “A Rated” by the Better Business Bureau is a great way to find those that consistently deliver the highest ratings in customer satisfaction.
One example is Alleviate Financial. Our debt experts are here to help you become debt-free regardless of a recession. To get started, contact us at 877-879-4905 at Alleviate Financial Solutions today!