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 Let's say that you wake up one day to find yourself knee deep in debt. You've been outspending your income for quite some time and everything and everyone suddenly catches up with you. Perhaps you've even let things get so out of control that now you're afraid of losing you home or you car. You need help with debt elimination and you're not alone.
Options to Eliminate Debt
Everyday people wake up to face a similar financial crisis. The crisis might be caused by the loss of a job, a sudden illness or just plain old overspending. But your financial situation doesn't have to go from bad to worse. You can start to turn back the financial tide sweeping in on you and get that debt under control.
If you find yourself in this situation, you probably have a short list of real options to eliminate your debt or get it under control - budgeting, credit counseling, debt negotiation, debt consolidation, or as a last resort, bankruptcy. The best option for you probably depends on how deep you're in debt, how quickly you want to try and eliminate your debt and improve your financial prospects in the future.
Let's take a quick look at each debt elimination choice, starting with the self help options of budgeting and debt negotiation. Next well look at the debt elimination options that make use of external resources such as credit counseling, debt consolidation and bankruptcy.
Eliminating Debt on Your Own
These first two sections will describe your first line of defense against a growing debt problem - budgeting and negotiating with creditors. For many individuals, this may be all they need to eliminate their debt or get it back under control. In fact, if there was one single best recommendation on eliminating debt over the long haul, it would be to create a budget.
Using Budgets to Control Debt
We talked about budgeting in our article about credit card debt elimination. And the same process applies here. Start putting together your household budget by listing all your income sources. Then you need to list out your expenses and make sure you highlight the important ones - mandatory expenses - rent, mortgage payments, travel expense to work, utilities, auto loans, and insurance premiums. Now make a list of your less important expense - discretionary expenses - you know, the ones that you could cut back on or eliminate if you had to. Expensive clothing and entertainment come to mind as discretionary expenses.
Added these expenses and income items up and make sure the "money in" is greater than "money out." And make sure your budget is realistic and not one that is built on future income that may never materialize.
We've got three articles dedicated to this particular topic if you want to learn more about putting a budget together::
- Budget Worksheet - which is a two part series describing how to put together a budget as well as including a budget sheet your can download.
- Family Budget Basics - this article allows you to create a budget and compare it to national average spending patterns.
- Household Budget - another "how to" budget article that emphasizes mandatory versus discretionary expenses as well as providing a personal budget to download.
Debt Negotiation
When we talk about negotiating down debt, we are not talking about calling creditors on the phone and asking them to forgive all your debts - that's just not realistic. In this situation we are talking about contacting companies that you owe money and making more realistic payment arrangements.
For example, you might be carrying a balance of $300 on your water bill. Instead of trying to pay the entire amount in one lump sum, you can probably negotiate a debt payment arrangement - sometimes referred to as a deferred payment arrangement - that allows you to pay off the $300 over a year's time.
Keep in mind that these same companies that you owe money want to actually collect that money, so forgiving this debt or making an arrangement will take some work on your part. The best approach to take is an honest one. Make an arrangement that you can meet or you'll be calling them again and the next round of negotiations will be even tougher.
In fact, if you're not sure what type of arrangement you can live with or you simply don't want to deal with creditors, then you might want to seek the help of a professional credit counselor.
Finding Help Eliminating Debt
If you've failed to get your debt under control on your own, or you just think your situation warrants the help of a professional then you've basically got three options - credit or debt counseling, debt consolidation services and bankruptcy.
Credit Counseling
If you've had problems with sticking to a budget or are not really sure how to create a realistic budget, you might want to consider contacting a credit counseling organization. Many credit counselors work for nonprofit organizations that are well equipped to work with you to solve your financial problems.
In our articles on Debt Counseling and Christian Debt Consolidation, we provide some good advice on how to identify a legitimate credit counselor. But as mentioned in those articles, just because an organization says it's a "nonprofit," that does not mean that its services are free.
Remember, the goal here is to eliminate debt, not make it grow. In the articles mentioned above we tell you what types of services a good counselor will provide.
Consolidating Debt
Debt consolidation might be one of the fastest ways to eliminate debt offered today. By taking all of your individual "loans" and putting them together in one place you've got a chance to pay back what you owe on more reasonable terms.
Most debt consolidation loans will require collateral and your home is a likely choice. This type of loan provides you with income tax advantages over some of the other personal loan options you have. If you're considering debt consolidation to help control your monthly debt payments we have the following articles that can help:
- Debt Consolidation Mortgage - this article provides you with an introduction to home equity loans, cash out loans as well as mortgages.
- Debt Consolidation Service - here we offer a primer on debt consolidation including what to expect from this kind of service provider.
Online Debt Calculators
We also provide online calculators to that can help you to better visualize what a debt consolidation loan can mean to you including our debt reduction calculator, consolidation loan calculator and our credit card payoff calculator.
Bankruptcy
If you've been told that bankruptcy is the easiest way to eliminate debt, then hopefully you've been told that it also the most painful. You can lose your home, your car and still wind up owing people money. Legal fees are expensive and judges don't always show compassion.
If you think bankruptcy is the answer to a five year shopping spree, think again. It doesn't work that way. But if you think you have no other choice, then consult an attorney - bankruptcy is a very serious legal matter. Your attorney should be able to give you idea of what your financial future might be like after bankruptcy.
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