How to erase your debt

When you get in debt over your head and are uncertain what to do about it, there really are only a couple of options that you can take. Some of them are easier solutions than others, but you want to take a look at the whole picture before you make your decision. Here are your choices when you must get out of debt.

Consolidate Debt Yourself

Probably the easiest way out of debt involves doing it yourself. While this is not possible in some cases, it is in most situations. Only you will be able to decide if this option is available to you.

Check to see if you can simply consolidate credit card debt and put it on a new credit card that will give you the opportunity to make balance transfers. This will only be an option to you if you still have rather good credit, and if your debt is not that large. It is harder to get one of these cards now, but if you can do it and still get low credit card interest on balances transferred, then it is a good deal. Even better, though, would be a card that gives you 0% APR interest on transfers for the life of the balance (very few will actually do this, and it does not include new charges). Watch out for fees that may apply to the transfers.

Another way to do it yourself would be to simply seek to free up more money from elsewhere in your monthly expenses in order to increase the payments made to each creditor. In the long run, this may actually be your best option. Another choice would be to take on another part-time job in order to bring the debt down to a controllable level.

Going for debt elimination yourself is also a very good way to help you bring your own debt under control. You will also need to learn better money management techniques, as well as create a family budget that you can stick to. It will also be necessary to leave the credit cards at home, too, especially when you go shopping.

If you like something that is a little more instantaneous, however, here are three more options.

Go for Debt Negotiation

Dealing directly with the lender is another way you can provide for yourself a debt solution. In many cases, a lender will work with you in terms of interest rates and amount of the payment size. The key here is simply to talk to your creditors. Do not let months go by without making at least a minimum payment on each bill.

Please note that some companies are willing to do this for you. What is happening all too often now is that they are oftentimes scams, and they may fail to ever contact your debtor at all. This leads to worse credit problems, and it may even be months before you realize what has been happening.

You may actually be surprised at the results you can achieve when you seek to work out some kind of new debt arrangement with the company. While some may not listen at all, many will. You really will not know what you can get until you try this step in seeking for your debt solution.

Seek a Debt Consolidation Loan Solution

After you have tried the above two solutions, then this is your next reasonable option. Getting a debt consolidation loan simply means that you put all your debt together, especially your high interest credit card debt, and then take out a new loan to cover the total amount. This should enable you to get a loan with less interest and smaller payments each month.

Most likely the new loan will have to be a secured loan, and you will have to use your home or car as collateral for it. If you can, you will want to be sure to make the payments on time, because this will also enable you to build up your credit score and repair any damage that may have occurred.

It is a good idea to consider getting a debt loan when you start seeing problems building up that indicate financial trouble may be on the horizon. With a better credit score still intact, you will be able to get a better interest rate, and possibly a longer time period to pay it off – although the goal would be to eliminate debt as soon as possible.

Paying more than the minimum is a good step because it will enable you to get out of debt sooner. It also will enable you to save money and reduce the cost of the overall interest on the lifetime of the consolidation loan.

Obtain Debt Services

There are good companies out there that offer to help you reduce your debt. Their main method is to contact your credit lenders and work out a new deal with them. A fee will be charged for the services and all you need to do is to pay the company an agreed upon sum every month.

Unfortunately, while it sounds ideal, it often does not happen that way. What is happening in some cases is that the company offering the debt services pockets the money every month for the fees, but may not have actually worked out a new deal with the creditor. As was mentioned earlier, this is something that you can do yourself, allowing you to save the cost of the fee.

The fee that is charged by some of these debt consolidators is usually a percentage of the debt still owed. In other words, for a debt of $10,000, you may pay about $2,000, or 20%. The company promises to reduce your loan by as much as 40 to 70%. If it were true, then it is not a bad deal. Too often, though, people are finding themselves without the fee money, and still just as much in debt as they were before – but now with damaged credit scores.

Debt consolidators should always be checked out before they are trusted. They should also have been in business long enough to have earned a good reputation before you trust them.

Declare Bankruptcy

This is another choice that is available for those in extreme debt that has no other solution. However, before it is even considered as a debt solution, the other options mentioned above should be attempted first – way before it gets to this point.

When you start finding that there is not enough paycheck to last until the end of the month, it may be time to see what can be done about it. Having problems with debt should be dealt with quickly in order to prevent ruining your credit score. Here is a serious look at debt consolidation to determine if it really is your best course of action.

Review Your Family Budget First

The first step you want to take should not be to run to the bank and get a debt loan. The first thing you want to do is to review your family budget and see where the money is going.

This needs to be the first step because it is undoubtedly the thing that could prevent future problems, but there are a few steps involved. You see, even with a debt consolidation loan, it will only help you temporarily if you do not learn how to control your finances. Better money management practices will not only help you get out of debt and stay there, but it will also help you to get better mileage out of your dollar, and to prepare better for your future.

As you look over your budget, you want to look at it critically to determine where money is going unnecessarily. You want to find out all those extra things and eliminate them so that you can free up more money each month to go toward reducing your debts and meeting your monthly obligations.

In some cases, you may find that you simply are buying beyond your income. If that is the case, getting a bill consolidation loan really is not the solution you need. Instead, it would be better if you simply put some (or develop some) self-discipline into your spending habits and learn to say “No” much more often to those things not needed. With each new purchase you are about to make, ask yourself whether or not you really need it, and then decide.

Will Debt Consolidation Really Help?

If you are prone to look at debt consolidation as a quick fix, and then intend to rack up more debt with the extra money that becomes available – you can be sure that more serious financial trouble is headed your way. It won’t take long, either, to find you.

What many people do who consolidate credit card debt, is to just turn around and start charging again on those now empty credit cards. They have not learned from their experience.

It will only work for you if you either stop carrying around those credit cards, or destroy them. Paying with cash only, or paying off any new credit card charges in full each month as they come, is the only way to properly handle an excess of debt.

If you do not have a lot of debt and your credit score is still good, you may want to try and get a new balance transfer credit card. This is your best option because it will actually enable you to get very low, or even no interest, for up to a year. You could transfer your current credit card debt to the new card and save a lot of money. Then, it must become your goal to pay down as much of this debt as you can within that year.

What Does a Debt Consolidation Loan Do?

When you take out a consolidation loan for credit card debt, there are two things that this needs to accomplish. It should enable you to get a lower payment each month than the individual bills will have when combined, and secondly, it should give you a better interest rate.

Combined, these two features of a debt loan consolidation will free up money for you as soon as the loan is approved. If you make your payments on time, it should also enable you to possibly even raise your credit score some over time.

If you choose to go through a debt services agency, or get debt counseling, then you may or may not get additional training in money management. In most cases, if you are willing to rein in the finances yourself, you can learn on your own what you need to know. Declaring bankruptcy, however, is an altogether different matter.

Can Debt Consolidation Help if You Have Bad Credit?

If you are past having good credit, you may still be able to qualify for debt consolidation. However, to be honest, you will probably have to spend quite a bit of time looking for a lender.

The truth is that they are out there, but you will need to be very careful about who you get your money from once you get to the stage of desperate. There are many unscrupulous people and companies who will be glad to get you to sign the papers and give you the money, but the cost is higher than what you should be willing to pay.

Check out any potential lender online for its reputation. Also, be sure to check with the Better Business Bureau before you agree to sign anything.

What about Failure to Pay Off the Debt Consolidation Loan?

When you get a consolidation loan from a lender, most likely it will be a secured debt consolidation. This means that you will have to offer some collateral in order to get the loan. It will usually be your car or your home.

While most credit card companies do not have any collateral for the credit they extend to you, a debt consolidation loan comes with a price tag on it if you fail to pay back the loan. If you fail to meet the agreed upon payments, they will repossess your car or foreclose on your home. Obviously, this makes it in your best interest to make payments monthly.

The experience of getting into debt that you cannot handle should make you want to get out of debt as soon as possible. No one wants to live in debt, but many have been in debt so long that they have forgotten what it means to be debt free. Hopefully, even if you have to get a debt consolidation loan, you will work toward that goal – and reach it as soon as possible.

Most people who find themselves in debt today realize that it did not come on them suddenly. While that does sometimes happen because of medical bills, in most cases it is a more gradual thing. Getting out of debt requires an understanding of how the debt came in the first place – so that there is not a repeat. Your own financial history needs to be examined so that repeating it does not happen by mistake – or ignorance. Here are some problem areas that could be behind how many people end up in debt.

Having No Budget in Place to Control Flow of Money

Many people know what a budget is and they may actually understand the need for it, but few people actually have one that is usable. When there is no budget in place, or when it is not followed, more money is often going to places that are totally unexpected – and unseen. Before long, it seems like there never is enough money on hand, and the debts can accumulate rapidly.

Being constantly aware of where the money is going is an essential first step toward gaining control of debt. Hopefully, your debt is not yet out of control. In most cases, using a debt consolidation company is not necessary. You can often do it yourself and save money, but it will be necessary to set up a budget first to gain the control you need to stop the uncontrolled bleeding of your finances.

Failing to Watch the Credit Cards

Here is a second common problem that often leads to debt that gets out of control. If people understand that the first credit card (Diner’s Card) was not used like they are today, but it was merely a way to get a bill so that cash did not have to be carried. The bill was expected to be paid in full as soon as it was received.

This was a good thing at the time, and credit cards really need to be treated like this for the best way to save money and stay out of debt. Failing to look at credit card debt as total debt leads to a misconception about how much you really owe. I ran into this problem and it produced a problem with the amount of income I had (next point). Had I paid each charge in full when I got the bill, it would have been easier to stay out of debt.

Credit card companies get rich (very rich) simply because people cannot control their credit cards (their wants). When they are seen as a way to buy more things than you could otherwise – trouble is not far behind.

Having More Bills than Monthly Income

A budget can allow you to see when a trend is developing. You can see what is happening to your finances quickly – as long as you stay on top of the budget and keep it up to date. Without a budget in place, you may not see that your monthly bills are becoming more than the amount of money you are bringing home until it is too late.

Adjustments to your finances can also be made when needed, as long as there is money available. It will also let you know when other purchases – the extras, can be made – and when they cannot. If you follow the budget, this is how it gives you greater control over your cash flow.

Not Having an Emergency Fund

An emergency fund provides a cushion when things do not go as smoothly as might be hoped. Everyone is aware of what happened about a year ago to the economy in this nation – nearly everything was turned upside down and most people were affected by it in some way or other.

An emergency fund can help you meet such unexpected events, although the extent of damage cannot always be predicted. Many people lost their jobs, and some are still looking for another one. While most crisis periods are usually shorter in duration, an emergency fund would have helped many to be able to temporarily stay out of debt – and possibly keep their homes. The fund can also cover you when there are unexpected events, such as a car accident that requires you to pay your portion of the bill first (the deductible amount).

The amount of money that is recommended for an emergency is about six to nine months worth of your cost of living. If you are self-employed you will want to have twice that amount – especially if you are the sole breadwinner in your family.

If you are without an emergency fund and you suddenly find yourself unemployed, or even unemployable, you can be sure that the bills will quickly stack up – along with the interest and late charges on those bills. This will make it even harder to get caught up, and having the creditors calling daily will not help anything, either.

Not Reviewing Expenditures Regularly

Even if you have a budget, it is a real good idea to review where your money has gone for the past few months. If you are younger, and your life style has frequent changes, you want to look over your expenses about every six months or so, but sooner if you have just set up your budget.

A family’s expenses change over time, and oftentimes, their wants will change, too. This means that money may still be going to things you do not need anymore. Why not take that extra money and use it to reduce a bill instead?

Develop a Plan to Get Out of Debt

If you are in serious debt today and see that you are headed for financial trouble, you can start to make some essential changes. The first step, however, is mental. You need to make some decisions that you will bring your money under control – or it will only happen again – no matter what solution you use. One more important decision that must be made is that you need to resolve to stop buying things you do not need until you are out of debt.

When in financial difficulty and things are looking pretty bleak, you do not want to rush into action of some kind without learning your options. You can get bill consolidation through a debt consolidation loan without the services of debt company. Also, there may be other solutions than having to declare bankruptcy.

As you seek to get out of debt and get into better money management, you will also want to be sure that you make a way to save money regularly. After all, saving money could be the one thing that will keep you out of trouble later, and it will provide you with some money for retirement – without debt.

Get started on getting yourself out of debt by reading our articles for strategies and advice to help you get out of debt!