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10 Ways to Get out of debt
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
Be careful when contemplating the use of a
credit counselor. There are many unsavory companies as you can see by in
the following news stories:
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. Many
people do not fully understand all the ramifications involved such as:
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Impact on your credit rating.
The credit bureau will record that a plan is in place.
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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.
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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:
- 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.
- 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.
- 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.
- 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.
- 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.
- You received a
Chapter 7 discharge within the previous six years. You
cannot file for
Chapter 7 again until the six years are up.
- 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.
- 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.
Chapter 13 Bankruptcy Information
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.
Chapter 7 Bankruptcy Information |
