If you need to get out of debt, here is some good news. There are several debt consolidation options that could help you on your way. However you ended up with debt, using a strong plan and sound financial counseling can get you back on track.
Basic Financial Practices to Help Manage Debt
First of all, let’s take a look at your budget. One of the things we do here at ACCC is budget counseling. You cannot possibly control and modify your budget until you know what you are spending and where. Here’s our budget sheet before we get started on the debt consolidation options.
Most of all, to get out of debt, you need to spend less than you make. What expenses do you have?
Well, there are fixed expenses and variable expenses. The amount you pay for rent, car payments, car insurance, health insurance, monthly dues, fees, phone bills and cable are probably fixed. Therefore, they do not vary month to month. Your minimum payment on credit cards is also most likely fixed but will go down over time. If you are not creating more debt! If you are only paying the minimum, that’s the longest way to get out of debt. Check out this debt payoff calculator to see how long it will take to pay off your debt by making minimum payments.
Variable expenses are where you have more control over how much you spend. Things like food, gasoline, entertainment, clothing purchases. You have at least some control over these costs. Using the budget sheet, plug in your numbers, and see what you end up with at the end of the month. Finally, if you have trouble with creating a budget, give us a call, and a certified credit counselor will help get you started on getting out of debt.
Managing Financial Trouble With Debt Consolidation Options
If you are really in deep debt, there are debt consolidation options that can help you with your monthly credit card bills. Here they are in simple form.
- A debt consolidation loan – you borrow money (if you have good credit!) and pay off your debt and then pay off the loan. Probably not a good option, and if your credit is bad, you’ll pay high interest anyway. If your credit is really bad, you won’t be eligible for a loan anyway.
- Debt settlement – hire a debt settlement lawyer, stop paying your credit card debt and put money into an account that will be used to make an offer to your creditors for less than you owe. Drawbacks- you pay the lawyer, and the amount you save by paying less on your account is taxable if it is over $600. As a result, it damages your credit score.
- A Debt management plan – or DMP. For many, this is the best solution. You contact a credit counseling company like American Consumer Credit Counseling, and you create a budget with a certified counselor. If you are eligible, your counselor will create a proposal to pay off your credit cards over time. You send one payment to the agency and they disburse it to the credit card companies for you. You can be paid off in 5 years or less on average, and spend far less on interest and penalties. The credit card companies sometimes offer lower interest, and some even re-age the accounts making them current, and dropping penalties. At the very least, a call to a credit counseling agency can get you on the right track to getting out of debt.
- Bankruptcy – The final option. With new rules in place, before you file bankruptcy, you need to go through credit counseling. It is more difficult now than previously to get out of debt through bankruptcy. A bankruptcy counselor can help you in making that decision.