You probably do not remember how easy it was to get your first credit card or loan. You also do not remember your lenders putting out the red carpet because they thought you would repay your loan on time, and come back for a new one before long. This affair with your lenders continued as they gave you credit, loans, and a bonus gift to thank you for your business. However, one or more things may have happened to spoil your affair with your lenders. Perhaps, you now have too much debt, or you cannot make the monthly payments anymore because you do not have a steady job. If you find that you cannot manage your debts, or the payments leave you without proper food, for example, you may want to consider one or more of these three debt solutions.
Credit Counseling
This is a good first step. You can work with a credit counseling company to help you get your finances in order. Once your financial house is in order your counselor can contact your creditors with a plan to repay your debt. Of course, this is not automatic because you still have to get your creditors’ approval. But your counselor will negotiate with your creditors to get you a good deal that has value to both you and your creditors. Remember that creditors do not want you to stop paying altogether. They much prefer to work out a deal for certain terms rather than have you skip town. You also must remember that once you have income coming in your creditors might not agree without some significant concession from you. So it is important you discuss your financial position truthfully with your counselor before she approaches you creditors with one or more debt solutions.
Self Repayment
If you have enough savings, you can use this money to pay off your debts. Yes, this could affect your future if you use your savings to clear your debt. But look at it this way: your savings are probably earning 1-2% annually, and you are likely paying 18-24% interest computed monthly. Even without converting the monthly rate to an annual rate, you can see you are paying out more interest than you are earning. In other words, assuming a 2% rate, you receive $20 in interest annually for every $1,000 in savings. This works out to less than $2.00 per month. Similarly, if you decide to payoff $1,000 in debt you will save the interest calculated each month. Again, without complicated math, you can see you are way ahead by using your savings to pay off your debt. Once you pay off your debt, you can begin to save for the future.
A Home Equity Loan
If you own a home and you have equity in it, you can also use the equity as collateral for a loan to repay your debt. This is a popular method nowadays because most people have some equity in their homes, having bought them for much less than they are worth today. Of course you may be wondering about taking such a drastic step to repay your debt. But many people are waking up to the reality that health concerns should supersede the myths about owning your own home. What is the use of worrying about paying off your debts when you have the money. Indirectly, you ran up the debts to help maintain the home, so why wouldn’t you use the equity to pay off the cost associated with running the home.
All of these debt solutions require your full attention. Using one or more of them can free you from an unhealthy debt hell.