Struggling with debt? Well, you are definitely at the right place! There are many ways to get out of debt, all of which we discuss below. Obviously, each works differently for all, which is why it is recommending you have a read of all the ways to get out of debt, before you choose one. Regardless of the method you choose to adapt to your situation, it is important you are extremely cautious, as many companies take advantage. This is why you must carry out some research and thoroughly understand each method below.
Five Ways to Get Out Of Debt
- Debt consolidation
- Debt management
- Debt settlement
- Do it yourself
Searching for Methods
One thing we have found is using search engines to find out a little about each of these programs is definitely not enough. If your try searching on let’s say Google, all you will find is a wide range of companies that provide the service; however, are these true? How do you know? That is right, you do not. Carry on reading below and understand exactly how the process works, before making the final decision.
Debt Consolidation and how it Works
The first of the five ways to get out of debt is debt consolidation. The option is the minor and least drastic, because you do not have to discuss with your creditors before considering this method. The first of ways to get out of debt entails taking out a new loan, which is called a debt consolidation loan. This is to pay of your existing debts, where consolidate means to cluster numerous things together. Once you know about the method, you will start to see this does make sense, as all your existing debts are grouped into one new loan. This way, you will only pay one bill monthly and your payments are made more efficient. With this one of the five ways to get out of debt, you may even get lower monthly payments and interest rates than what you currently pay.
What to Expect
If you choose this one of the five ways to get out of debt, then this is what you can expect:
- Contact peer-to-peer lender or bank
- Work with lender to create terms for new loan
- Debts transferred to new lender
Before going about the first of ways to get out of debt, you should do a little research on several companies in order to find the one you wish to work with. Once you have found a lender, it is important to verify that their interest rates and terms are good. They also need to have a look at your credit score, and if it is over 660, you should easily be able to get the loan.
The peer-to-peer lender or bank that is offering the loan will be your new and only creditor, which is why you need to work with them to make sure monthly payments and interest rates are going to work for you. It is important you do not miss the fine print on the form, and you also need to calculate the entire cost of the loan, which includes the interest you will be paying.
Once your debts are transferred to the new lender, you do not owe any previous creditors anything. The total amount of your balance is now owed to your new lender.
The Bottom Line
This one of the five ways to get out of debt is a brilliant option if you want a better working repayment plan than the one you already have. You need to ensure that the company you sign up to is trustworthy and realistic. You also need to make sure you can comfortably follow the plan, as the last thing you want to do is get swallowed in debt once again.
Debt Management and how it Works
The second of the five ways to get out of debt is debt management. This is often mixed up with debt consolidation because the majority of companies advertise both methods.
With debt consolidation, this is obtaining a new loan that gives you one payment and is able to pay off your old debts. With debt management, companies and non-profit groups offer a program that helps you discuss a brand new payment plan with your existing creditors. This is known as debt management plan (DMP) and allows you to keep your current debts with the same balances. However, you discuss lower monthly payments and lower interest rates.
If you are considering this plan, then a recommendation would be to get help from a credit-counseling, non-profit organization. If you think this method is for you, then you may also want to use a credit counselor who is certified.
Steps for DMP
- Make appointment with credit counselor
- Creating the plan to pay off debt
- Credit cards are cancelled and plan begins
- Will take up to 3-6 years to complete
You will start by visiting your credit counselor, where you will be given practical methods to help improve your monthly budget. This is so you will have money left over, which will go towards paying off your debt.
A DMP will be created depending on how well you can make monthly payments, and the number of accounts you owe. Prior to making the plan, they will ask your creditors to lower your monthly payments and interest rates.
Do not stop here and be sure to read Five Different Ways to Get out of Debt (Part 2).