Now that the national economy is beginning to recover and people are having a better time dealing with their personal finances, many consumers who found themselves sunk deep in debt over the last few years may be asking themselves the question, “How do I get out of debt?” Fortunately, there are a number of avenues consumers can take to get out of debt, each with benefits and drawbacks depending on how quickly people need to fix their financial problems.
For those asking themselves, “How Do I Get Out of Debt”, and desiring to do it the old- fashioned way, by paying their bills on time – the key is to reduce the amount they owe to lenders by increasing their monthly payments every month. One can go about this by using the “snowball method”. Consumers start by paying off their credit card with the highest interest rate first. Maximum funds are applied to this card’s monthly payment only, while just making the minimum payment to the others. Once the first card is paid off, its time to move onto the next. This method may take long, but it is more effective than making the minimum payment on all their cards, which could take a life time! In addition, they would also benefit from cutting their credit card spending. This can be accomplished by creating a monthly budget that identifies areas where money may be wasted every month.
Some consumers can establish a healthy, sensible budget by working with a credit counselor. However, enrollment in such a service would likely be viewed negatively by a lender even though it doesn’t affect their credit score. A Consumer credit counseling (CCC) program is a method of debt relief for those who are unable to make minimum payments and undergoing financial difficulties. However, CCC programs could take participants up to 6 years or longer to complete and their debt is not reduced when compared to a debt resolution program. They may still have to pay back 100% of the debt they owe plus interest. In addition, if a monthly payment is missed, they could be dropped from the program altogether.
Consumer Credit Counseling Services, on average, have very high rates of client cancellation, which does not bode well for their delivery of a successful debt management program. With that being said, a CCC program may be a viable option for those with under $10,000 in unsecured debt, or for those that are able to afford higher monthly payment obligations and are well disciplined to remain in the program.
Consumers may also find a solution to the question, “How do I get out of Debt” by calling a credit card lender and simply asking for a lower interest rate. If they have a good enough credit score, their current lender may be inclined to drop the interest rate on the account to keep their business. If that does not work, it may be beneficial to transfer the balance to a new account with a low or 0 percent introductory interest rate, which would allow them to pay off their other debt more quickly. A consolidation loan transfers the debt they owe and bundles it into a package that seems affordable with an overall lower payment. But use caution as a lot of debt consolidation companies offer very low rates to start, but within a few months, those rates may go right back up to 10 – 24%, and one can end up back in the place they started.
Another potential method for getting out of debt is enlisting the help of a debt settlement service. With this program, professional negotiators work with the consumer’s lenders to explain their financial situation and achieve debt relief. Client programs are custom-tailored to provide individuals with one low monthly program payment and target a fairly quick time frame for resolving the debt. This option could be one of the fastest ways for people to become debt-free from their unsecured debts as enrolled accounts may get settled in as little as 24-48 months. Keep in mind, this process will also cause damage to the participant’s credit score, though it may also allow him or her to repair a credit rating fairly efficiently after the program is completed.
While its all too common these days for consumers to be asking the question, “How do I get out of debt,” the good news is that there are sensible alternatives for those that do their research and choose a path that fits with their financial goals.