Getting Out of Debt
By Kristi Vaughan
Bad things do happen and one of them is debt. Whether you are in debt because of a job loss, major illness or overspending, the result is the same … your credit is going down the tubes and it is time to take action. Here then are several steps you can take to get out of debt.
Create a budget
Know how your income and expenses relate so you can better keep spending at or below income levels. Include debt repayment in your budget.
Arrange repayment
Creditors want to get repaid so, in most cases, they will work with you to arrange a repayment plan. Contacting them yourself, and before they have had to pay for the services of a collection agency, will better enable you to work out a solution.
Negotiate rates
Here's a tactic I like: call around to several credit card companies and find out which will offer you the lowest rate, then call your current credit card company and tell them you want them to match the lowest rate you were offered, or you're transferring your balance to the other card. You'll be surprised how often they'll give you a lower rate to keep your business.
Pay in cash
If the use of credit is what got you in trouble in the first place, then stop using those credit cards. If you can’t pay for something in cash, evaluate your need for it very carefully. Could you possibly save for the item? And, if you have to use a credit card, use the one with the lowest interest rate.
Avoid drastic consequences
When you signed an auto loan or mortgage, you also agreed that the lender could take possession of your car or home should you default. Since lenders are in the lending business and not auto sales or real estate, most don’t want to do this. But they will if you do not repay the loan. To help avoid foreclosure or repossession, talk with the lender and see if you can create an alternate payment plan.
Consolidate
If it is high interest department store or other debt that is weighing you down, you may be able to make repayment more affordable by consolidating your debt into one loan. If you are a homeowner with equity in your house, you may be able to take out a home equity loan at a significantly lower rate.
Talk with a credit counselor
Credit counseling services, often funded in part by creditors, exist to help people get out of debt. The Consumer Credit Counseling Service of Southern New England, with offices in Connecticut, Rhode Island and Massachusetts is one such service. Talk with your creditors to get the name of a reputable service or search the Internet and then do your homework before signing up. And be aware that just because a credit counseling service claims to be a non-profit, that doesn't mean they won't charge you a hefty fee. Many will, so ask lots of questions about fees.
Watch out for scams
A word of caution should be interjected here. There are multitudes of newspaper, radio, TV and Internet ads offering to fix your credit rating – for a fee. While many of these may be legitimate businesses, the Federal Trade Commission warns there also are many scams. The primary word of advice on avoiding scams is “buyer beware.” Before you sign on for services, check the business out with the Consumer Protection Agency or local Better Business Bureau.
Bankruptcy is last resort
As a last resort, you can join the million or more people who file for personal bankruptcy each year. But beware. A bankruptcy filing should not be done lightly. It is something that will stay on your credit record for 10 years and will ruin your chances for getting a mortgage, car loan or other loan. You should seek legal advice before you consider this action.
For More Information:
