Sooooo. You have too much debt and need to get out! How do you do it? There isn't too much magic in all of it. But you should follow a prescribed method for dealing with the debt rather than allowing it to take over your sanity.
The following are debt reduction/elimination methods. Each step should be considered in sequence before moving on to the next (and more serious/intense) option. BTW if you do not already work according to your own prescribed budget, the following articles precede all others: Basics of Budgets and Budgeting as well as Budgets and Motivation.
- Emergency Debt Payment Hierarchy - If you are reading this article because the money is completely gone but the bills are not, your 1st priority is reading the referenced article. A similar article to consider is Getting Out Of Financial Hot Water. But please avoid the very tempting and luring PayDay Loans.
- Rapid Debt Elimination - I have been teaching this method for over 10 years and the most frequent comment I hear is, "why don't they teach this in school". The reason is simple. Most creditors don't want you to know that the average consumer can eliminate all debt including the mortgage in an average of 7.5 years.
- Transfers and Consolidation - Balance transfers and debt consolidation can be very handy strategies but with selected stipulations. The first stipulation includes determining why you are trying to reduce your debt. If it is to have breathing room with your budget, that is one thing. But if the purpose is to create new debt, you are digging a hole you may never climb out of. The next important question is: will current unsecured debt become secured as described in the referenced article. If this is the plan, be sure you know what you are doing. Finally, most often lowered payments are only accomplished by paying more interest over a longer time. In each case, you must do the math and determine if paying more overall is worth it. By the way, if you are considering a debt consolidation via credit card I strongly suggest avoiding this issue (See Credit Card's Dirty Little Secrets)
- Debt Counseling - It is possible in some cases to negotiate for a lower interest rate... not often but sometimes. You must consider, why would a creditor be willing to sacrifice all that great interest. Usually you will be told that they will reduce your rate after a few months of on-time payment. But often the higher interest is what caused the late payment. This is when a debt counselor and Debt Management Program (DMP) can really help. But I strongly suggest to be careful in selecting your agency as suggested in the reference article. I also suggest reading, Debt Counseling Getting Super Scary.
- Debt Negotiation - Be very careful with debt settlement as its cost can be devastating with minimum return. Settlement or negotiation should be considered only if bankruptcy is the only remaining recourse. Similarly, you can do your own negotiating (see Debt Settlement Letter) instead of resorting to someone who will charge you and perhaps even make matters worse. If you do elect to use a debt settlement agency, get recommendations from others who have used them.
- Bankruptcy - With the new bankruptcy law of October 2005, I am certainly not a bankruptcy advisor. However the reference link does offer authoritative resources for your consideration.
Accreditation and Non-profit Status are NOT Good Indicators.
Source: www.freemoneytraining.com
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