Diminishing household debt has been a recurring feature of the U.S. economy during the last four years, as citizens have fought hard to reduce the nation's cumulative debt from its 2008 peak of $12.7 trillion. Having fallen to just $11.2 trillion by the beginning of 2013, it appears as though these efforts are having a positive impact on consumer confidence and the economy as a whole.
As a result of this effort and improved sentiment, the month of May saw borrowing rise at its fastest pace in more than a year. U.S. citizens increased their borrowing by $19.6 billion from April's figures, as consumer confidence soared from 69 to 74.3 over a four-week period. This trend even continued into June, with more and more Americans using credit to make small- and large-scale purchases.
Breaking the Cycle of Debt: Reducing your Liability without Unnecessary Spending
While these statistics may be positive news for the U.S. economy, the revolving nature of credit card debt means that increased borrowing may ultimately have a negative impact on the nation's long-term growth. This is especially true if consumers borrow based on sentiment and impulse rather than cold hard fact, or fail to dramatically reduce their personal debt liability before seeking out new lines of credit. In short, consumers must ensure that they continue to reduce their debt levels in an effective and responsible manner, without borrowing unmanageable sums of money.
It is also important that you attempt to reduce your debt without spending unnecessarily, as there are numerous management solutions that demand an initial investment without delivering value for your money. This can undermine much of your hard work, so consider the following steps towards reducing debt in a cost-effective manner:
Be Wary of Free Credit Reports and Hidden Financial Products
It is well known that by partnering with credit experts such as Experian, Equifax and TransUnion, you can access a free copy of your credit report. While this is an important step towards understanding your full financial liability and organizing a manageable payment plan, you should be wary of additional financial products that may be charged as a result of using an affiliated service.
There have been complaints made by consumers who have accessed free copies of their credit history, only to be subsequently billed for monitoring services including fraud alerts and the restriction of access to their reports. These services may be offered by a partnering firm, so it is important to make a note if you are transferred to an alternative website or asked to participate in any free trials. If you do unwittingly subscribe to an unwanted service, you must opt out as soon as possible if you are to avoid incurring a charge.
Know your Rights and Avoid Paying Unwarranted Charges
While paying minimum monthly fees may not enable you to eliminate your liability quickly, it at least helps you to develop a reputation as a reliable and consistent debtor. Regular repayments are important if you are to reduce the accrual of additional charges and interest, but you must also be wary of your rights as a consumer and understand the exact details of each individual debt. This will prevent you from paying inflated sums on a regular basis, while it will also ensure that you are not misled by lenders and forced into an unmanageable repayment plan.
According to the Financial Protection Bureau, banks and third-party debt collection agencies must adhere to a strict code of practice if they are to avoid financial penalties. In the wake of a record $3.2 million fine being levied against the world's largest debt collection firm, Expert Global Solutions, government agencies are keen to level the playing field for debtors and help them to reduce their liability in a responsible manner. This is why you must remain extremely savvy as a consumer, especially when it comes to determining the exact amount that you owe on your outstanding accounts.
Re-Negotiate More Favorable Terms with your Creditors
Scrutiny of debt collection practices has intensified in the wake of the Great Recession, while Barack Obama has been keen to help consumers repay their secured loans by cracking down on unscrupulous lenders. Programs such as the recently extended Home Affordable Refinance Program provide a relevant case in point, as they assist consumers in renegotiating the terms of their financial agreements to avoid foreclosure or other unenviable consequences of falling behind on a secured loan.
Negotiating with creditors is subsequently far easier than it has been previously, as this provides stricken debtors with an opportunity to reduce their financial burden without spending outside of their existing means. By opening the lines of honest communication with each individual lender, you can explain your exact circumstances and ask them to consider revised terms that will benefit you going forward. Whether this involves an adapted payment schedule or the implementation of a reduced interest rate, it can help you to pay off your debt without incurring more.
The Bottom Line
While it is not possible to repay your debts without investing money into the process, you should avoid spending unnecessary sums of cash in the pursuit of a financially liberated future. Costly financial products, unwarranted charges and unmanageable payment plans will only add to your debt over time, so your ability to acquire knowledge as a consumer and pay attention to detail will ultimately help you to achieve more effective results.