Debt is on the minds of millions of Americans. How did it happen? How can it be managed? CAN it be managed? How does anyone get out of debt? Debt consolidation can be the source of a tremendous amount of stress and discontent. Debt can seem like a bottomless pit, impossible to get out of without extreme measures being taken.
Unsecured debts, like credit cards and personal loans, charge some of the highest interest rates of all consumer debt. Not knowing how much debt is held and the rate being paid for that debt can cost quite a bit of money in the long run.
Take a look at several tips to get debt under control and paid off:
The first step is to make a list of all income and debts, including balances and interest rates. This can be the hardest step for many people. Seeing all of the debt listed on paper can be a shock or a relief. But, this step will help when it is time to decide which further step(s) might be appropriate. Use our free Online Budget Advisor tool to help you with this step: www.onlinebudgetadvisor.com
In some instances, the anguish being felt over the debt wasn’t warranted. It can be solved by putting a plan on paper and tackling it. It may require reducing some expenses for a few months and putting that extra money toward the debt.
In many other cases, the feelings of dread are legitimized. The amount owed is large, and the income doesn’t seem to be enough. Don’t panic. There is help; there is a way out of debt; there is a way back to peace and a feeling of security.
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Second, once income and debts have been identified, take advantage of non-profit agencies that provide free credit counseling. This step can reduce frustration later down the line and save debtors money on less than reputable debt relief options. Ensure that the agency chosen is respected and their terms are those that fit the individual need. There are many available with different debt management programs.
Free credit counseling can provide many tools for managing debt and keeping it that way. Their job is to listen to the debtor’s situation and work with them to create and manage a budget, manage the debts already incurred, and provide access to free classes and materials that will help debtors stay on the right track.
Credit counseling is about educating the debtor and providing them with the tools and education to tackle their debt independently, helping to formulate a plan to get out of debt. This service is available to anyone who wants to be educated on debt and managing it.
The third tip for paying off debt is to consider debt consolidation. This option is ideal in a scenario where much of the debt is credit cards or high-interest debts. Another situation debt consolidation could be idyllic for is if the debtor has several different bills with several different due dates and would like to put them into one loan for ease. Debt Management Programs are a form of debt consolidation and the safest way to combine all your unsecured debt into one lower monthly payment.
True debt consolidation requires qualifying for and obtaining a loan and is best if the interest rate on the loan is lower than the interest rate of the debts being consolidated. Getting a lower interest rate could be difficult, depending on the debt the person has and what their credit score is. It can also be challenging to get a lower interest rate on this type of loan or obtain a loan at all, depending on credit factors. Many times they get turned down for a loan.
Debt consolidation can help with lowering the interest rate and, ultimately, the amount paid for the credit. It can also provide a sense of control and perhaps resolve some stress related to the debt. A debt consolidation loan is really about moving your debt from one place to another. It doesn’t really address the issues or problems that created the debt in the first place.
Fourth, check out some debt management programs. A debt management program works with unsecured creditors on the debtor’s behalf to make the debt more manageable. A debt management program will work directly with creditors to have interest rates lowered, extend the amount of time to pay the debt off, and do it on a payment schedule appropriate to the individual’s income and debts.
This option does not provide a loan but will work with the current creditors to include them in the debtor’s program. The program requires that payments be made to the agency, and they send the payments out to the creditors each month on time. Before signing on with a debt management program, do the appropriate research to ensure they are reputable and that anything that is said is also put into writing.
Finally, here is the fifth tip. Debt costs money. Don’t take on any additional debt while you’re trying to get out of it. No matter what path is chosen to get out of debt, it is equally important to choose a path to stay out of unmanageable debt. By developing a budget, staying on top of bills and debts, and learning to spend within the means provided, the stress and angst over debt can be eliminated over time.
Avoiding unmanageable debt is ideal. But, if the debt has gotten past that point, there are ways to pay it off. The steps above are all courses of action that debtors can turn to when help, advice, or education is needed.
Most Non-Profit Credit Counseling agencies offer a debt management plan, which is also similar to debt consolidation, because you make ONE monthly payment to the credit counseling agency, which distributes the money to all of your creditors until they are paid in full. These credit counseling agencies do not make loans, nor do they settle debts. They never lend out any money. Instead, they have agreed upon arrangements with the creditors, many of which will lower interest rates and waive fees, so more of your payment goes toward the balance rather than interest or finance charges.
Other Helpful & Important Info:
- It’s important to do your research on a credit counseling agency to make sure they are reputable and accredited by the National Foundation for Credit Counseling(NFCC), the Council on Accreditation (COA), and have an A+ rating with the Better Business Bureau (BBB). Just because an agency is non-profit that doesn’t mean they follow all the rules or they have a good reputation. It’s important to do research and make phone calls. Find out if your friends or family recommend an agency.
- Before you start a debt management plan, you must go through free credit counseling. This can be done in-person, over the telephone, or even online from the comfort and privacy of your own home. During the credit counseling session you’ll be asked for information such as income, assets, liabilities, credit card debts, etc. This will help determine your current budget, and you’ll find out if you have a shortfall (in debt) or an overage (money left over each month). You’ll get a good look at your current financial situation and where you stand. This will help you with your final decision.
- Debt consolidation is not right for everyone. That’s why it is so important to do the credit counseling session first to find out what all of your options are. You may be DEEP in debt and not even realize it, so bankruptcy could be your only option. You could also not be that bad off and find that if you make some changes and cut-backs you could pay off your debt yourself. For a debt management plan to work, the bulk of your balances should be in unsecured debts, such as credit cards. If most of your debt includes other types (student loans, tax debt, child support, old parking tickets, etc.) these debt management plans won’t help.
- You still have responsibilities and work to do even when you are on a debt management plan. Your creditors will still be sending you account statements each month, which you’ll have to monitor, copy, and then send into the agency every 3 months or so. Many Agency reports do not reflect the interest that you’re still being charged, so if you don’t submit them, the balance the agency reports will be different from what your statements say. If you are still getting harassing phone calls, let your agency know, and they will handle it, but you need to communicate with your agency and let them know.
- No more charging on credit cards until you are completely done and off the program. Most likely your credit cards will be closed by the lender once you are on a debt management plan. This is to prevent you from racking up any more unsecured debt while you are on the program. You may not get any new credit cards until you are debt-free. This can be a hard adjustment if you’re used to using credit cards on a daily basis. In the case of an emergency, you’re allowed to leave one card open, which is typically a general purpose account with a low or zero balance.
Consolidating your unsecured debts through a reputable Non-Profit Credit Counseling agency can be helpful, but first you must know where you stand with your finances and what all of your debt relief options are. Your certified credit counselor will be able to give you all of this information and answer any questions that you may have. It’s important that you learn from your mistakes and commit to a life where you live within your means. You will have help, guidance, free tools, articles, etc. from your credit counseling agency to help you achieve this and to remain debt-free.
If you want to take the first step in becoming debt-free, give us a call today at 866-699-2227 or visit us online at www.advantageccs.org and find out how we can help you!