Finding the Best Path out of Debt for YOU

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With the advent of GPS technology, finding your way around an unfamiliar city is no longer the problem it was in the past. Hit a few buttons or speak into a microphone and you’ll be led step-by-step to your desired destination. Finding the best path out of debt for you is a bit more involved. But it doesn’t have to be difficult, if you’ll consider these strategies.

Figure Out Where You Are

Before you consider any plan for dealing with your debt, take some time to assess your situation. Make a list of all the bills you pay each month (including rent/mortgage, phone, water and utilities). List the name of the debtor, the total amount you owe and the interest rate (where appropriate) along with the amount of the monthly payment. Add all of the monthly payments up and compare the total to your monthly income. If you make more than you owe, you might be in better shape than you thought you were. If you make less, your options will be fewer—though they do exist.

Debt Snowball/Avalanche Strategy

If you’re making more than you owe, but it’s still problematic, list your debts again; this time, in order, from highest balance to lowest balance. If you’ve been paying as much as you can on each one, stop doing that and make only the minimum payment on all of them except the one with the lowest balance. Take all the excess money you’ve applying to all of the others and add it to the payment you’ve been making on the one with the lowest balance. Keep doing this each month until it is paid off. Then take all of that money and do the same to next one up. Repeat the process until they’re all paid off—making sure you don’t charge again until they’re all paid off.

Debt Consolidation

If your credit is still in good shape, another way to go is with a debt consolidation loan. In this scenario, you’ll borrow enough money to pay off all of your credit card debt and the like. The advantage of doing this is you combine all of those bills into one, usually at a lower interest rate. You can then take all the money you’ve been applying to those separate accounts and use it attack one debt. Here, you must be careful to ensure the payment is less than the total you’re currently making on credit debts and the interest rate is lower. If you’re successful there, you’ll pay off the debt much sooner, but again—stop charging.

Credit Counseling/Debt Management

Consulting a credit counselor can help you learn budgeting skills, credit management techniques and get an overview of your entire financial situation.

In some cases, counselors will recommend debt management as a means of eliminating your obligations. You’ll deposit money each month with the credit counseling organization, which it will use to pay your unsecured debts (these include credit card bills, student loans, and medical payments).

Counselors can also sometimes get creditors agree to lower interest rates or waive certain fees.

If this sounds like a good plan for you, take some time to make sure the company counseling organization is on the up-and-up. You’ll also want to check with your creditors to make sure agreements really are in place.

Debt settlement/Negotiation/Relief

A debt settlement firm negotiates with your creditors to settle for less than the outstanding balance, which you then pay off. To do so, you’ll be put on a deposit schedule into a FDIC-insured escrow account, from which funds will be drawn to settle the debt with your lenders.

It’s important to note certain types of debt are immune to this strategy. This includes mortgages, public student loans and car loans. Also, the IRS considers the forgiven portion of the debt income, so there may be tax ramifications.

You also have to vet settlement companies carefully. There are some nefarious operators out there. Look for approvals from organizations such as the American Fair Credit Council. Testimonials such as these Freedom Debt Relief reviews can provide insights to the veracity of a company as well.

Finding the best path out of debt for you is possible. It’s simply a matter of taking stock of your situation and determining which of these options will be the most favorable route to your solution.

About Author

Dee Carreon
Dee Carreon

Mom Blog Society guest writers are comprised of men and women who feature brands from around the world. They encompass our vision to utilize the power and potential of the Internet to connect consumers and brands around the world as never before.

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