In the current recession, how to get out of debt is a question that is affecting more and more people. It is very easy to get into debt when you go through a bad patch financially. You may have lost your job, had a long time off sick, or lost a part of your income such as overtime payments. You let the credit cards mount up or take out a loan thinking that things will quickly be back to normal and you can pay everything off.
But often, it does not turn out to be so easy. Maybe you cannot find another job. Or maybe your company cuts back on your hours permanently. Even if the situation is resolved and your income goes up again, the debt is usually not so easy to pay off.
The best way to get out of debt is just to keep making those monthly payments on time. Do not worry that it is going to take you a long time. Just budget for it, do it and think of it as a necessary expense like the mortgage or the rent. Remember, that money is not available for spending.
If this system is just not working for you, there are several other ways to go that might be helpful.
Debt Consolidation
This is a way of paying out on a lot of small loans or credit card debts with one large loan. It can work out cheaper per month, especially if your debts are mainly on high interest store accounts or credit cards. It can also be very good for people who have problems managing money and keeping track of all their debts.
To be successful with debt consolidation, you need to include all of your debts, everything except for monthly living expenses. And do not run up any more credit card balances after you consolidate the old bills. In fact, it would be best to cut up those credit cards and store cards until your consolidation loan is completely paid off.
The danger with debt consolidation is that you may take out the big loan and start paying the small loans off — but then start accumulating more debts while you still have the big loan to pay. This can leave you in a very bad situation. Do not let this happen to you. If you do, there’s a good chance you’ll find a bankruptcy in your future.
Renegotiate Your Loans
Most loans (including credit card debts) can be renegotiated to give you longer to pay. This can often mean smaller monthly payments, or even a ‘payment holiday,’ if you simply cannot make your payment this month.
Negotiating with your bank or credit card company is not as scary as it sounds. Just plan ahead. Work out a proposal of how much you can offer in payments. Then call and explain your situation truthfully, and tell them what you suggest in order to get your debt paid. Make sure that you ask them to remove any late charges or overlimit charges as part of the deal.
Bankruptcy
This is a last resort process where, briefly, you have a court declare that you cannot pay your debts and will not be able to do so in the foreseeable future. You give up most of your belongings that are beyond a certain dollar limit, and your creditors have to accept whatever they are awarded by the court. Bankruptcy can be voluntary (where you initiate it) or forced (where you have court judgments against you that you simply cannot pay).
Most people lose most of their assets in bankruptcy proceedings, unless they are low income and own very little to begin with. You could lose your home, if you own it, as well as your car, and any savings that you have. You will find it pretty hard to get credit for about seven years after a bankruptcy. In terms of how to get out of debt, this is usually not the best course of action, but it is the only remaining option available to some people.
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