Debt solutions have become an urgent priority for many Americans.
The economic recession has taken a toll and forced consumers to reassess spending habits.
Individuals carrying high levels of debt should evaluate available options to determine which is best suited for their needs.
Common debt solutions include: budgeting, debt consolidation, credit counseling, debt settlement, and personal bankruptcy.
Each offers advantages and disadvantages which should be carefully weighed.
Budgeting is the simplest and most affordable debt reduction strategy.
However, in order to be successful debtors must be willing to adhere to their budget.
The first step involves creating a list of income and expenses.
When expenses are higher than income, debtors must either reduce expenses or increase income.
People often have more disposable income than they realize.
One way to find out exactly where money is spent is to keep track of all expenditures for 30 days.
Impulse buys are the number one felon for depleting income.
People often spend hundreds of dollars each month on morning lattes, fast food lunches, and bottled water.
Another budget-buster is using credit cards to pay for daily expenses.
Consumers will never break free from credit card debt when they charge living expenses and pay minimum payments.
Creating a household budget and eliminating unnecessary expenses can free up funds and allow consumers to pay off credit cards more quickly.
Credit counseling can help consumers review expenses and create a get-out-of-debt plan.
It can be highly beneficial to work with trained professionals.
Not only can credit counselors help consumers develop a household budget, they can offer suggestions on debt reduction strategies.
Consumers struggling to make ends meet may qualify for no-cost counseling through non-profit credit counseling agencies.
Debt consolidation is typically reserved for homeowners with accrued home equity.
Using real estate as collateral, consumers can take out a home equity loan to pay off high interest credit cards and unsecured loans.
The interest charged against home equity loans or home equity lines of credit (HELOC) is substantially lower than interest assessed on credit cards.
Borrowers can often save between 5- and 18-percent in interest charges alone.
Borrowers must use caution when taking out home equity loans.
Defaulting on loan payments can place real estate at risk for foreclosure.
Debt settlement requires debtors to retain the services of a debt settlement company.
Debt settlers charge consumers an upfront fee and monthly service fees.
Combined, these fees can be as much as 40-percent of the total amount of debts.
Consumers should first attempt to negotiate creditor debts on their own.
Creditors will sometimes reduce outstanding balances if debtors can offer lump sum payment and a reasonable payment plan.
Personal bankruptcy should be used as a last resort as this debt relief option can have far-reaching effects.
New bankruptcy laws took effect in 2005 and require debtors to repay a portion of their debts by establishing a Chapter 13 payment plan.
Payment plans generally extend for 2 to 3 years.
During the repayment phase, debtors are prohibited from incurring new debt.
Bankruptcy remains on credit reports for up to 7 years.
Credit scores can be reduced by upwards of 100 points and place debtors into a lower credit bracket.
Debtors who are able to obtain credit in the future will be subjected to higher interest rates and reduced credit limits.
Taking control of debt can be challenging, but with the right tools and resources consumers can break-free from financial bondage.
By taking time to research all available debt solutions, consumers can make informed decisions as to which solution is best, than make a solid plan to permanently eradicate debt.
The economic recession has taken a toll and forced consumers to reassess spending habits.
Individuals carrying high levels of debt should evaluate available options to determine which is best suited for their needs.
Common debt solutions include: budgeting, debt consolidation, credit counseling, debt settlement, and personal bankruptcy.
Each offers advantages and disadvantages which should be carefully weighed.
Budgeting is the simplest and most affordable debt reduction strategy.
However, in order to be successful debtors must be willing to adhere to their budget.
The first step involves creating a list of income and expenses.
When expenses are higher than income, debtors must either reduce expenses or increase income.
People often have more disposable income than they realize.
One way to find out exactly where money is spent is to keep track of all expenditures for 30 days.
Impulse buys are the number one felon for depleting income.
People often spend hundreds of dollars each month on morning lattes, fast food lunches, and bottled water.
Another budget-buster is using credit cards to pay for daily expenses.
Consumers will never break free from credit card debt when they charge living expenses and pay minimum payments.
Creating a household budget and eliminating unnecessary expenses can free up funds and allow consumers to pay off credit cards more quickly.
Credit counseling can help consumers review expenses and create a get-out-of-debt plan.
It can be highly beneficial to work with trained professionals.
Not only can credit counselors help consumers develop a household budget, they can offer suggestions on debt reduction strategies.
Consumers struggling to make ends meet may qualify for no-cost counseling through non-profit credit counseling agencies.
Debt consolidation is typically reserved for homeowners with accrued home equity.
Using real estate as collateral, consumers can take out a home equity loan to pay off high interest credit cards and unsecured loans.
The interest charged against home equity loans or home equity lines of credit (HELOC) is substantially lower than interest assessed on credit cards.
Borrowers can often save between 5- and 18-percent in interest charges alone.
Borrowers must use caution when taking out home equity loans.
Defaulting on loan payments can place real estate at risk for foreclosure.
Debt settlement requires debtors to retain the services of a debt settlement company.
Debt settlers charge consumers an upfront fee and monthly service fees.
Combined, these fees can be as much as 40-percent of the total amount of debts.
Consumers should first attempt to negotiate creditor debts on their own.
Creditors will sometimes reduce outstanding balances if debtors can offer lump sum payment and a reasonable payment plan.
Personal bankruptcy should be used as a last resort as this debt relief option can have far-reaching effects.
New bankruptcy laws took effect in 2005 and require debtors to repay a portion of their debts by establishing a Chapter 13 payment plan.
Payment plans generally extend for 2 to 3 years.
During the repayment phase, debtors are prohibited from incurring new debt.
Bankruptcy remains on credit reports for up to 7 years.
Credit scores can be reduced by upwards of 100 points and place debtors into a lower credit bracket.
Debtors who are able to obtain credit in the future will be subjected to higher interest rates and reduced credit limits.
Taking control of debt can be challenging, but with the right tools and resources consumers can break-free from financial bondage.
By taking time to research all available debt solutions, consumers can make informed decisions as to which solution is best, than make a solid plan to permanently eradicate debt.