Many consumers may have found themselves facing debt worries for the first time due to the coronavirus pandemic. But there are several options for reducing or eliminating personal debt and protecting your credit score, according to Jeremiah Mooney, Collections and Recovery Manager at Spero Financial.
“Debt was an issue for many folks prior to the hardship caused by COVID-19, but I think that COVID highlighted the issue, surprised all of us and left many of us struggling because of being out of work for several weeks, sick loved ones, or layoffs that happened early on,” Mooney said.
The most important first step for any household is to have a budget or spending plan that is reviewed periodically, Mooney said, trying to build up a rainy-day fund for emergencies.
In terms of paying down debt, Mooney offers the following strategies:
Debt Snowball
With this method, consumers list their debts in order of outstanding balance, with little attention given to the interest rate on loans. The loan with the smallest balance is paid off first, working your way up to the loan with the largest balance.
“This method really focuses on the psychological momentum that is gained from being able to cross something off the list or delete it off your Excel spreadsheet,” Mooney said.
Debt Avalanche
This method considers the interest rate on loans, recommending that you tackle the loan with the highest interest rate first.
Debt Consolidation
This is a form of debt refinancing whereby you obtain a fixed-rate personal loan or credit card with a low or zero percent APR to pay off existing debts. Mooney cautions consumers to be aware of when the interest rate on a new credit card will increase.
Debt Settlement
Debt settlement is a form of debt relief, whereby consumers call creditors to try to settle loans or pay less than what is owed.
“Debt settlement can be a worthwhile option for resolving (a debt),” Mooney said. “Usually, you have to have a lump sum – paying 30, 60 or 80 percent of that outstanding balance, and it should then report as ‘settled for less than the full balance owed.’”
Those interested in obtaining a personal loan can apply online at Spero.Financial.com. Consumers also can call Spero’s Member Service Center at 800-922-0446.
