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Without a financial buffer, any unexpected expense—a car repair, medical bill, or period of unemployment—forces individuals to rely on high-interest credit cards, payday loans, or other forms of borrowing to survive, instantly creating or worsening debt.
You can often negotiate to pay a lump sum that is less than the full amount owed to settle the debt. Always get the settlement agreement in writing before sending any payment. Be aware that the forgiven amount may be reported to the IRS as taxable income.
Multiple BNPL plans with different due dates can create a complex web of payments that is hard to track. This "debt stacking" can lead to cash flow problems, where a consumer's income is already spoken for by numerous small payments across various providers.
Ensure the new loan’s interest rate is lower than your current rates, factor in any origination fees, and avoid extending the loan term too far, as this could increase the total interest paid over time.
Prioritize the Debt Avalanche or Debt Snowball method for repayment. Your focus must be on reducing your overall debt-to-income ratio and total balances, not on the types of debt. High utilization and late payments are doing more damage than a lack of diversity is helping.