Got debt problems? You're not alone. Today, millions of Americans are struggling to make ends meet and carry a substantial load of debt. Experts suggest nearly 2 million U.S. citizens will file for bankruptcy protection this year to reduce or eliminate their debt problems. The problem with filing bankruptcy is unless you can afford to get back on track, bankruptcy may only make your problems worse.
Believe it or not, solutions exist to cure debt problems. One of the most effective, yet overlooked debt remedies is good old fashioned budgeting. By developing a monthly budget and living within your means, you can overcome debt problems and become financially free.
Budgeting does require self-discipline. If you have a spouse or children, everyone needs to be on the same financial page. Children can learn about budgeting at a very early age and should be involved at a level they can understand. By teaching your children how to create a family budget and stick to the plan, you are offering them a gift that will last a lifetime.
Credit counseling is a good option for people who are unable to create a debt elimination plan on their own. It can be very helpful to have a neutral party review your finances and help you determine where overspending occurs. Credit counselors can offer suggestions to trim waste from your budget and provide tools to help you stay on track.
Some credit counseling agencies are able to negotiate with creditors to reduce interest rates or eliminate late fees. Most credit counselors are well-connected within the finance industry and can assist in negotiations to reduce outstanding balances.
Individuals who are considering filing bankruptcy to eliminate debt problems should consider using an approved credit counseling agency through the U.S. Trustee Program. Anyone who files for bankruptcy protection is required to obtain credit counseling. By using one of the approved agencies, if credit counseling doesn't solve your debt problems, you will meet the requirements of the new bankruptcy laws and won't have to engage in counseling twice.
Another option for solving debt problems is debt consolidation. Typically, debt consolidation is reserved for homeowners who have built-up equity in their home. Using the equity as collateral, lenders provide a second mortgage against the real estate. All outstanding debts are transferred to the new loan.
Although this can sound like the perfect get-out-of-debt plan, there are serious risks involved. First, by using your house to repay creditors, you are placing your home at risk for foreclosure. If you are unable to meet the obligations of the home equity loan, your lender can initiate foreclosure proceedings.
Secondly, by rolling unsecured loans into a home equity loan, you will potentially be paying more in the long run. Unsecured loans are generally paid off within three to five years; whereas home equity loans extend for ten to fifteen years. Interest is charged during this time and could cost substantially more by extending the terms. It is important to calculate the true cost of home equity loans before securing your home as collateral to payoff outstanding debts.
Debt settlement is an option for people with significant debt problems. This type of financial transaction is typically offered through debt settlement companies. Debt settlers charge a fee to negotiate with creditors and reduce outstanding balances. In some cases, creditors will reduce debts by as much as 50-percent.
Individuals can attempt to negotiate debt on their own. In order to be successful in debt settlement negotiations, debtors should be able to provide an upfront lump sum cash payment and pay off the balance within a short period of time.
Unfortunately, there is no quick-fix to solving debt problems unless you win the lottery or inherit enough money to pay off debts. However, with patience, persistence and a plan, credit cards can be paid off and debts eliminated. It is simply a matter of finding the best solution that fits your needs and adhering to the debt elimination plan created.
We invite you to learn more about bankruptcy alternatives, debt solutions and money management in our comprehensive article library.