How to get out of debt
When you are overwhelmed by debts and there seems to be no solution in sight, you can still do something to keep your debt under control. There are certain steps to take when you want to have a grip over debts.
Depending on the amount of debt you have accumulated, you may only need to take some simple actions to curb the problem, but in some cases, you will be required to take extreme measures. Some simple actions include the following.
You should adjust your spending habits. If you want to control your debt, you should not add more to it. Most people do away with their credit cards to stop them from spending more. If you know you will be tempted to spend if your credit card is with you, stop taking it along with you when you go out. If you are someone who shops online a lot, you may consider burying or freezing the card in ice. You will not be able to access it for shopping even when you are home. You should also cut down on luxury outings to restaurants. This will help you to minimize your expenditure and make it easier for you to clear your debt.
- Repay your debts
You will also need to start repaying your debt regularly. You will not be able to pay it off at once but regular payments can clear your debt eventually. It is essential not to miss monthly payments. Even if your disposable income is minimal, you can make a budget and allocate cash for your debt repayments. Always try to pay the maximum amount payable. If you pay large amounts monthly, you will be able to clear the debt fast.
- Consolidate your debt
If you are dealing with several lenders, and you are having a hard time making payments to each lender at the end of the month, you can consider consolidating your debt. Consolidating your debt puts your debts together to make one single debt and you may even pay that debt at a lower interest rate. Some banks, credit unions, or online lenders offer loan consolidation. Some will offer you personal loans at lower interest rates. You will be required to use this cash to pay off all previous debts and then you will begin paying the new loan. There are two types of debt consolidation loans; secured and unsecured loans. With secured loans, you will need to back the loan with an asset while you do not need to provide security when it comes to unsecured loans. Unsecured loans are more expensive and are also not easily available. This is because such loans are risky to the lenders. There is also an option where you can transfer your balance up to your available line of credit. A balance transfer allows you to transfer the balance from your high interest rate credit cards and store cards to a low interest rate card. To do this, you will need to apply for a balance transfer from a credit card company that can offer you lower rates. When you are approved, the credit card company will contact your creditors on your behalf. They will then pay the amount you owe. This process can take up to two weeks until the transfer is complete, you need to be cautious not to miss payments to your creditors. If you realize that a due date comes before the transfer is complete, you should make that payment to avoid missed payments. Balance transfers can reduce the amount you owe, making it easier to pay off your debt.
- Debt Settlement
You can also take extreme measures when you realize that you cannot pay off your debt no matter how hard you try. Debt settlement is one of such methods that will help you manage your debts. With debt settlement, you will negotiate with the creditor to accept a portion of the amount as full payment of the amount. If the lender agrees to this, he will no longer ask for the payment and he cannot sue you for the non-payment of the remaining loan. Debt settlement does not work for all types of debts. For items which can be repossessed, you cannot opt for debt settlement. For instance, if you cannot pay your auto loan or home loan, the lender will rather take the vehicle back. With debt settlement, you will have to open a savings account and start depositing your monthly payments instead of paying them to the lender. Once you have accumulated enough, the debt settlement company will negotiate with the lender to take a smaller payment in place of your debt. Even though it sounds easy, debt settlement is risky and the process is not as simple as it sounds. Since you will stop paying your debt in order to accumulate enough funds for the debt settlement, you may accumulate late fees during that period. You may even be sued for non-payment of loans during that period. Your balance may also keep going up during that period. You may even be slapped with tax for the forgiven debt later. There is no guarantee that the lender will agree to a debt settlement as well. All these make the process a risky one. This should be your last resort. You should never consider this if you have a slight chance of paying back the loan.
- File for Bankruptcy
Another extreme measure to consider filing for bankruptcy. With bankruptcy, you will be tested to see if you qualify. You will need to pass a means test – a test that analyzes your income, expenses, and your assets to see if you cannot afford to pay the loan. You do not qualify for bankruptcy if you completed one within the past 8 years or if you failed to comply with court orders on a previous one you filed. Filing for bankruptcy can take up to a year. The first step is to go for pre-file bankruptcy counseling. This should be within the six months before filing. There are many non-profit credit counseling agencies who offer free counseling. The next thing to do is to find an attorney to handle your case. You cannot do this process by yourself if you are not an attorney. The attorney will help you to file your bankruptcy. You will also be required to gather all the required documents on your assets, income, and debts.At this point, the lender can no longer sue you or ask for payment. The court will then appoint a bankruptcy appointee to start managing the process. The trustee will next call for a meeting between you, your lawyer, and your lenders. You will be required to answer all questions regarding your documents. After the meeting, there will be a review of your case and the trustee will confirm whether you are eligible for bankruptcy. The trustee will check if there are items that can be sold and the proceeds are given to your lender. If you have secured debts, the mortgage will be sold and the proceeds are given to the lender. If there are items you do not want to be sold, you can negotiate and then you will pay back that debt. After the trustee confirms that there are no assets that can be liquidated, your debts will be resolved. You will go for another credit counseling and then you will be discharged.Bankruptcy should also be a last resort. You should only consider bankruptcy if you do not have many assets and or if your debt if more than half of your annual income. You may also consider bankruptcy if it will take you more than 5 years to pay even if you take extreme measures. You should, however, note that students’ loans, child support, and recent taxes are not eligible for bankruptcy. It should also have in mind that bankruptcy will stay on your credit report for at least 7 years. Some can last up to 10 years.
Once your debt is resolved make a conscious effort not to accumulate more debt in the future.
If you are overwhelmed by your debt, it is vital to act fast to curb the problem so that it does not create a bigger problem. Your credit score will take a huge hit and you may even be sued if you do not act fast on your accumulating debt.