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How To Get Out of Debt
If you are having problems dealing with all of your debts, you are in good company. Millions of Americans struggle with credit cards and face challenges dealing with other lenders every single day and wonder how to get out of debt fast.
In fact, households that don’t completely pay off their credit cards at the end of each billing period have an average balance of $16,000 on their cards they carry from month to month, seemingly unable to put a dent in it.
Additionally, there is over $1.6 trillion in student loan debt out there. You don’t have to struggle with your credit cards and student loans forever though.
If you take some decisive actions right now, you’ll be able to tackle those high balances and become debt free forever.
Here are some things you can do to start getting your finances in order right now.
One of the most common ways to deal with personal debt is to exercise a little self-discipline and put measures in place to tackle it on your own. This technique is often called bootstrapping.
In most cases, bootstrapping involves acting without any outside support or intervention to solve your financial problems. Bootstrapping is a good choice for people who are in a financial position where they feel, with a little extra effort, they can tackle their debt issues on their own.
So, if you have a stable job, plenty of income and think tackling those credit cards just requires a little more personal effort, this may be the perfect option for you.
There are many ways to bootstrap. For example, you could make significant adjustments to your household budget and eliminate as many superfluous expenses within it as possible; this would free up additional cash you can use to pay down your credit cards or student loans.
Setting a tight budget where you cut things like cable tv, streaming services, and dining out can help you free up significant amounts of cash in your budget each month.
Once you’ve freed up the cash, allocating that money towards debt reduction can be powerful. Getting your whole family on board with the new budget so that they support the plan is essential though.
Additionally, you could seek to work more hours in the job you have now, or pick up a side hustle to earn extra money as well.
Then, you could use the additional money you earn to pay down your debt as well. When it comes to bootstrapping, you would likely take multiple actions like all of these mentioned here in concert to help tackle your financial problems and get them under control.
While bootstrapping can be a great way to deal with your debts, it does not work for everyone. If you’re living paycheck to paycheck, or your outstanding debt balances are too high, it can be difficult to tackle them just by tightening your belt.
Additionally, if you have lost your job, or don’t have the ability to work more hours, attempting to deal with all of your lenders on your own may not work either.
So, if you’ve assessed your debt problem and don’t believe bootstrapping is a good fit for your current financial situation, you may have to look at other options.
Another technique many borrowers use to get control of their finances is debt consolidation. With debt consolidation, all of your debts are combined into a new single loan.
After consolidating your debt you’ll be left with a single payment, usually at a much lower interest rate than what you dealt with on multiple credit cards.
This makes it easier for borrowers to manage and pay down credit cards and, other outstanding loans.
There are many lenders that offer debt consolidation loans since it has become a popular option for dealing with credit cards and loans borrowers have amassed; you can also consolidate all of your outstanding credit card balances through a credit card balance transfer as well.
Debt consolidation can be a good choice for borrowers who have decent credit, or the collateral, such as a house, to take out a low interest secured loan.
Using debt consolidation can make the credit card and student loan bills you receiving right now much more manageable; after all, it is easier to deal with a single loan payment each month rather than hunt around for four or five different credit card statements.
The lower interest rate and longer repayment horizon often means you’ll have a lower monthly payment on your debt, too. Overall, these loans and balance transfers can make it easier to manage the financial burden of your debt in conjunction with all of your other monthly bills.
However, if your credit is in bad shape, you don’t own a home, or you have high levels of outstanding debt, it may be difficult to qualify for a debt consolidation loan.
If you’ve lost your job or are experiencing reduced or lower income because of the coronavirus or some other event, it may be very difficult to secure one of these loans as well.
Additionally, if you need to use credit cards on a regular basis, then a consolidation loan probably won’t work for you, either.
Finally, if you want to get out of debt quickly, this is not going to be a good choice for you; these loans normally have longer repayment horizons, which help to reduce monthly payments but make your actual debt last longer.
If bootstrapping or consolidation loans aren’t a good fit for your current situation, you could also hire a debt settlement company.
These companies essentially take over the management of all your outstanding debts and negotiate repayment terms with creditors on your behalf.
In many cases debt settlement companies can get the overall amount you are obligated to pay creditors back reduced considerably; occasionally they can even get lenders to cancel your account balances out altogether, so you don’t have to pay anything back.
Debt settlement is a good option for borrowers who have a steady source of income but do not have the capacity to ever pay off their credit card or other loan balances on their own.
Working with a debt settlement counselor can give you the power to deal with creditors that you never would have had by yourself.
The counselors at many of these companies take the burden of managing your debt off of your hands during the process, which can give you peace of mind as you build up a lump sum payment you can use to settle all of your account balances.
Your debt is essentially frozen for weeks or months as your assigned counselor gets to work.
However, this option, while it can be effective, is definitely not for everyone.
Borrowers have to be willing to relinquish significant control of their finances to the debt settlement company to manage.
The relationship between the borrower and the assigned counselor he or she works with is absolutely critical since there is a great deal of trust involved in handing over control of your finances to someone else.
Additionally, if you want to deal with all of your financial issues without ruining your credit, you are taking some risks when you use debt settlement.
The company will often have you cease making payments on your outstanding credit card and loan balances while they negotiate terms with your creditors; this could cause your credit score to drop considerably.
Finally, there is no guarantee that the debt settlement company will be able to negotiate better terms with all of your creditors either.
So, there’s a chance you could end up stuck with the same loan and card balances you had before you started using the debt settlement company.
Another option you could consider to help deal with all of the debt you are carrying is to work with a credit counselor.
Credit counselors are financial experts who can analyze your personal financial situation and determine a course of action for you to pursue in order to effectively deal with all of your creditors.
They will often continue to work with you over time as you attempt to implement your plan of action and help you build the financial habits that will keep you from ever going into debt again.
In many cases, credit counselors work for nonprofit organizations, so their services are often free, too.
One of the best things about working with credit counselors is that they can often help you address the root causes that made those credit card balances balloon in the first place.
Additionally, if you’re absolutely overwhelmed and cannot figure out what you need to do to address your debts, the advice and counsel these experts provide can be extremely helpful.
Finally, if you have overwhelming credit card and loan payments every month and low income, a credit counselor may be the only choice you really have for dealing with your financial challenges besides bankruptcy.
However, while credit counselors provide expert advice and assistance, the actual work of dealing with creditors and paying down all of those high balances you have will ultimately be left to you to complete.
Additionally, depending on the steps you take in order to address your financial problems with a credit counselor, you could end up hurting your credit in the process.
While this may be a short-term problem, it could impact your ability to use your credit in the near future to buy a home, rent an apartment, or land a job where good credit is important.
If you have absolutely no way to ever repay your credit card balances or loans either due to the exponential amount of debt you are carrying or because of job loss, then an absolute final resort to consider is bankruptcy.
If you file for bankruptcy, the debts you owe will ultimately be reduced or eliminated. There are two types of bankruptcy that are used for personal debt in most cases, Chapter 7 and Chapter 13, and they differ slightly.
A Chapter 7 bankruptcy requires you to liquidate all of your key assets and uses the proceeds to pay your creditors.
A Chapter 13 bankruptcy reorganizes your finances so that you do have the capacity to repay some of the debts you owe.
Bankruptcy will have an impact on your life that goes far beyond the financial aspects. Your credit will decline considerably, and it will be difficult to obtain a mortgage or other loans for several years; you will also pay higher interest rates on any credit you eventually qualify for, too.
The bankruptcy stays in your financial record for a decade and could also make it difficult to rent an apartment or in some cases land a new job, too.
So, think long and hard and ensure you have no other recourse when you opt to pursue bankruptcy.
Parting Thoughts: Talk to an Expert
It can be challenging to pay down high levels of debt. However, if you’re willing to work hard and follow a disciplined course of action, you can deal with those high credit card and loan balances and get on solid financial footing.
Each of the debt reduction methods discussed here can help you tackle debts and get your finances under control. However, each method has its own advantages and drawbacks, so you need to know all your options when it comes to addressing your debt.
So, talk to a trusted financial expert, and start making a plan to become debt-free forever.
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