As more Americans struggle with the burden of heavy debt, many consumers are looking for ways to relieve the financial stresses they’re feeling. There are some who will tell you that there are cures that can essentially make your debt problems disappear. While it’s true that it is possible to get out of debt, there’s no magic button that can wipe the slate clean without consequences. Curing debt requires sacrifice, discipline, and very often a lifestyle change, but it can be done. Here are a few options that people use successfully:
- Pay it off Step By Step: This is probably the natural first step that any consumer would take when trying to resolve debt problems. The borrower in this case simply needs to get their financial life in order. The process starts with organizing debts by type and interest rate and then determining a battle plan to get them paid off systematically. Focus on the highest interest rates first, ensuring to avoid any late fees or adding to your debt balance. One by one, that amounts you owe are reduced and finally paid off.
- Piggybacking: This is a lesser known strategy that was more common in the past than it is today, due to new rules from credit rating agencies. The idea is to become an authorized user on a liability with someone that has good credit and good habits. The indebted person benefits as timely payments are made, increasing the credit score of the troubled borrower.
- Consolidation: This is another proven way to pay off debt, but it’s not a magic pill. The borrower still needs to have the discipline to make the payments and stop racking up more debt. However, consolidating liabilities does have its advantages and if done right, the debt can be paid off faster and with less interest paid than issuing each debt individually.
There are excellent resources, both online and in your public library, that will teach people how to get out of debt. Be warned, however, as there are also many scams that will claim to cure your debt problems and then ask you to pay high fees both upfront and on an ongoing basis.
For example, a recent infomercial guaranteed that they can help people cure debt. The infomercial took the blame away from borrowers and placed it firmly on the shoulders of banks and other creditors extending credit to borrowers who lack discipline. By the time you purchase the books, tapes, newsletters, and counseling services, most borrowers would be further in debt that when they started, and without useful information.
They’re right that there are problems in America with how easy it is to obtain a line of credit. However, the true culprit in this country when it comes to debt is spending, and the real cure is discipline.
One of the most stressful parts of life for many consumers is managing their debt. While debt has basically become a necessity in this day and age, an increasing number of Americans are finding themselves in financial turmoil from taking on too much debt. Uncertainty in the economy is causing people to feel even more stress financially, and more people are looking for relief from the burden of debt than ever before. There are many options for debt relief available to consumer, but it’s important to understand the many choices available, as there are pros and cons to each choice.
The most natural path to debt relief is finding a way to pay off your debt on your own. The first step here is to stop spending money that you don’t have. Building up thousands of dollars in credit card debt will dig a hole that many consumers can never emerge from and make them slaves to credit card companies.
Get rid of your credit cards so that you’re not tempted to use them. Pay off the debt with the highest interest rates first, and work your way lower. Make more than the required payment to reduce the amount of time you’re making payments – paying as little as $10 above the minimum payment on your credit card each month can cut the time you’re in debt in half. Sometimes it requires a second job, more disciplined budgeting, or even selling assets, but will lead to much greater financial freedom in the future.
Of course, paying off the debt is not always a realistic option. For those who need to look at other alternatives, talking to a reliable credit counselor will help you to weigh your options. The option you choose is very important, as future lenders will surely take a thorough look at your credit history. Credit Counselors offer resources to indebted consumers and help them to make the best decision.
Some of the options include:
Debt Consolidation: Combining your debt into one big debt can often simplify your financial life and allow you to pay off your debt at a lower overall interest rate. A home equity line of credit is a great way to get a tax write off and generally lower rate, although this may not be an option for all borrowers.
Debt Negotiation: Hiring someone to negotiate a lower balance with your creditors will make the seemingly insurmountable task of paying off your debt manageable again. Creditors would rather get a partial payment than nothing at all and are often willing to work with borrowers.
Bankruptcy: As a last resort, getting a court order releasing you from your liabilities is one way to get relief from debt. It could cause headaches in the future if you’re trying to get a loan or get a new job however, so it should only be used in the most extreme cases.
Relief is available to borrowers burdened with heavy debt, but knowing all of your options is critical to making the best of a bad financial situation.
Just about everyone has at least some debt. Whether it’s a mortgage, auto loans, student loans, credit card debt, or any other borrowing we do as consumers, most of us have creditors expecting payments from us every month. Debt can be a slippery slope, and unfortunately, we probably all know of people who have taken on more debt than they can handle. One of the methods that people who are in over their heads can use is debt negotiation.
Debt negotiation is essentially the process a borrower goes through to strike a deal with a lender to reduce the amount of the owed debt. Some individuals undertake this negotiation on their own, communicating with creditors in hopes of convincing them to reduce the borrower’s balance. However, most consumers hire a professional to handle the negotiation. When it’s handled correctly, debt negotiation can be viewed as a victory for both the borrower and the lender; the borrower saves money by having the amount of their loan reduced, while the lender gets at least part of the borrower’s balance paid off. A lender failing to negotiate may push the borrower into bankruptcy, ensuring that the lender will suffer an even larger loss.
The first step if you’re looking for relief from the burden of debt is to contact your creditors. Communication is key in debt negotiation, and the earlier you contact your creditors the better. If there is an outside factor hindering your ability to make your payments, such as an extended illness or the loss of employment, make sure your creditor knows the full story and that you have a plan to get your finances back on track.
This may sound like a pretty good option, but it should be reserved as one of your last resorts before declaring bankruptcy, as there are some drawbacks that consumers need to be aware of. First, hiring an attorney to negotiate a debt can be very costly; many times the fees involved exceed the amount of savings for the borrower. Second, the damage to your credit score could be costly, as most debt negotiators are concerned only with reducing your debt today – their services aren’t designed to help your credit long term. Finally, the amount of money that your debt is reduced by is considered income to you by the IRS, so it’s important to plan for a higher tax bill in the year you save money on your payments.
If you’re considering debt negotiation as an option, do your research to ensure you’re working with someone reputable and effective. A Florida company was in the news in late 2006 after it was discovered that they had collected hefty fees from over 2200 consumers and had not successfully reduced debt balances for any of these customers. The Internet is a great resource, but it’s also littered with scam artists-if an offer sounds too good to be true, it probably is. When done right, however, debt negotiation can be an excellent alternative to bankruptcy.
When looking for ways to eliminate debt, it’s important to understand what your options are so you can choose the methods that are most realistic for you. There are several ways for people in trouble with debt to make their situation more manageable. Some of the options available to borrowers include:
Debt Consolidation: Debt Consolidation is the process of taking all of your debt and combining it, to make one big monthly payment instead of several small payments. Very often, this is accomplished through a home equity line of credit, or HELOC. The borrower would need to secure a line of credit, use the credit to pay off all outstanding debt, and then make one monthly payment until the HELOC is paid off. The advantages of debt consolidation are that the overall interest you’re paying on your debt is generally lower and the interest you’re paying is tax deductible.
There are also companies who offer to pay off your debt and become your creditor. This option may be appropriate for those who don’t qualify for a HELOC, but can also be costly. It’s important to research this option and talk to a credit counselor before signing up and paying upfront fees.
Debt Negotiation: Debt negotiation is simply paying someone to talk to your creditors and strike a deal with them to lower your balance due. Why would a lender ever agree to an arrangement like this? If a negotiator can convince the creditors that the borrower is on the verge on bankruptcy, the credit card company would rather receive part of what they’re owed than nothing at all.
It’s vital that you do your research before beginning the debt negotiation process. There are countless scams popping up on the Internet all the time and many consumers get fooled and end up paying a lot of money and making their debt problems worse, not better. Also, there are adverse tax consequences with debt negotiation, as the money you save is viewed by the IRS as income. You may have a larger tax bill than you expect after taking this step.
Bankruptcy: This should be the last resort and should only be used if debt has become an insurmountable financial hardship in your life. Through bankruptcy, a court of law deems that the borrower is unable to pay the debts and that they don’t need to be repaid. The slate is wiped clean, but the consequences will last for 10 years or longer. A bankruptcy will stay on your credit report for 10 years. If you need credit, it’s still possible to get a loan. However, the interest rate on the loan will be much higher than it would be if your credit report was clean.
Pay it Off: This may be the most difficult option, but will also be the most rewarding. Through budgeting, credit counseling, and most of all discipline, getting out of debt slowly but surely on your own will leave you in the best position for the future.
The United States isn’t the only country feeling the strain of heavy credit card debt load. Australia has joined the fun. During May their current credit card indebtedness rose some 10.8% to a new record of $40.24 billion, with each Aussie now averaging around $3,000 in unsecured credit card debt.
It seems all the bad habits Americans have embraced as a way of life, such as financing everyday expenses, as well as extravagant, unnecessary expenditures have brought this to the attention of the government, eliciting comment from labor Secretary Wayne Swan to Prime Minister John Howard, who while they each tell differing views about the severity of the credit card debt phenomenon, felt compelled to weigh in on the subject.
What is clear is that it is not in total crisis state yet. The Australian credit card debt is simply not going in the right direction. The opposition party will have you believe this is a symptom of a greater illness in the Australian economy, as people are struggling to make ends meet on a day-to-day basis, and are turning to unsecured credit lines to finance their lives. The Prime Minister and his cronies will contend that a wealth of assets are backing up this spending, and it’s a largely paper problem.
I guess it’s just a matter of who you ask, and how many credit cards they’re paying minimum payments on this month!
