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Ten Ways To Get Out Of Debt
By: Nathan Dawson
1) Use your Assets
If you have assets with some significant equity, such as a home or a car you may
be able to use these to get control of your debt. For example, you could get a
loan on your home sufficient to pay off your debts. You could be saving a
considerable amount of money on interest if you pay off high interest credit
card debt in return for lower cost debt.
If you have a car, consider selling it, paying off your debts and buying a
cheaper car. Be careful though! Your don't want a "cheaper" car that will cost
you a fortune in repair costs.
2) Get a Second Job
Use the money from this job to only pay off your debts. List your debts noting
the interest rates. Pay off the debts with the highest rates first and work your
way down the list.
3) Put your Credit Cards on Hold
One of the best steps you can take to get out of debt is to immediately stop
using credit cards. At the very least destroy all your cards keeping just one
card for emergencies.
4) Set up a Repayment Plan
Cut back on your expenses and/or use freed up cash to pay down your debts. Pay
off the debts with the highest rates first and work your way down the list.
5) Get a Consolidation Loan
A consolidation loan can make lots of sense. Get a loan to pay off all your many
debts and have just one payment to make. The new loan usually has a smaller
payment and a lower interest rate.
6) Use the Services of a Credit Counselor
There are two types of credit counselor, for profit and "nonprofit". We do not
distinguish between the two as they provide similar services and both charge a
fee. Credit counselors can assist you in acquiring the discipline you need to
get control of your debt. Be careful! Many people do not fully understand all
the ramifications involved such as:
Impact on your credit rating
The credit bureau will record that a plan is in place.
Are your payments too high?
Your payments should be high enough to significantly reduce your debt but not so
high that you have "no life". If you do not have money left over at the end of
the month to pay for the small pleasures in life you may find that you end up
defaulting on your payments.
For how long should you pay?
Most experts feel that the term should be three to four years. It is a
stipulation in the new Bankruptcy Reform Bills that the term be 3-5 years. Terms
longer than this have a very high failure rate, because people cannot see a
"light at the end of the tunnel".
7) Informal Proposal - Payments over time.
In some cases you can make a proposal to your creditors to set up a payment plan
that will allow you to pay your creditors in an orderly way and thus help
preserve your credit rating. This operates similar to a debt consolidation loan
except you do not borrow the money to pay off your creditors.
8) Informal Proposal - Lump sum payment.
You may be able to pay less than 100 cents on the dollar. For example, a
relative may be willing to pay a lump sum to the creditor of say 50% of the
amount owed in order for the balance of the debt to be written off. Your
creditors will be more willing to accept this offer rather than have you file
Chapter 7.
This works best when there are few creditors.
9) Chapter 13 Bankruptcy
You are probably a good candidate for Chapter 13 bankruptcy if you are in any of
the following situations:
1. You have a sincere desire to repay your debts, but you need the protection of
the bankruptcy court to do so. You may think filing Chapter 13 is simply the
"Right Thing To Do" rather than file Chapter 7.
2. You are behind on your mortgage or car loan, and want to make up the missed
payments over time and reinstate the original agreement. You cannot do this in
Chapter 7 bankruptcy. You can make up missed payments only in Chapter 13
bankruptcy.
3. You need help repaying your debts now, but need to leave open the option of
filing for Chapter 7 bankruptcy in the future. This would be the case if for
some reason you can't stop incurring new debt.
4. You are a family farmer who wants to pay off your debts, but you do not
qualify for a Chapter 12 family farming bankruptcy because you have a large debt
unrelated to farming.
5. You have valuable nonexempt property. When you file for Chapter 7 bankruptcy,
you get to keep certain property, called exempt. If you have a lot of nonexempt
property (which you'd have to give up if you file a Chapter 7 bankruptcy),
Chapter 13 bankruptcy may be the better option.
6. You received a Chapter 7 discharge within the previous six years. You cannot
file for Chapter 7 again until the six years are up.
7. You have a co-debtor on a personal debt. If you file for Chapter 7
bankruptcy, your creditor will go after the co-debtor for payment. If you file
for Chapter 13 bankruptcy, the creditor will leave your co-debtor alone, as long
as you keep up with your bankruptcy plan payments.
8. You have a tax debt. If a large part of your debt consists of federal taxes,
what happens to your tax debts may determine which type of bankruptcy is best
for you.
10) Chapter 7 Bankruptcy
If these alternatives will not work for you, bankruptcy may be the only way for
you to get a fresh start. Chapter 7 Bankruptcy offers a quick solution to
getting out of debt.
About the Author:
Nathan Dawson writes for http://www.mybankruptcycounseling.com, a great online
source for bankruptcy information |
