About How To Pay Off Debts-Getting Out Of Debt Is Easier Now With Right Plans
The thought of how to pay off debts or getting out of debt is foremost on the minds of those who struggle to survive day to day life burdened by debts.
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The most common denominator for all of our problems is debt and most of us have it up to our neck. The one thing good about the recession is that we are forced to tighten our belts and in the process concentrate on addressing the debt issue which otherwise we would not have done on our own.
Debts bring in many problems in it’s wake. When you are burdened by debts you lose your peace of mind and sleep. You are stressed all the time thinking about the next phone call from the creditor and also worried about family budget deficit. You always dread the accusation of not paying the debt installment on time leading to loss of financial credibility. Prolonged stress may lead to depression, blood pressure and other health issues. There are cases of some of those who can not pay off debts, committing suicide unable to put up with stress and social ridicule.
What are the causes of debt and how people get into it? The main cause is living beyond our means due to the culture of consumerism that seems to have profound effect on our psyche to have the latest updated gadget available in the market though the present old model we have is in good working condition. The urge to have the latest things before our neighbors have it, plays an important role in making us spend beyond our means. We like to have all possessions not only for the utility factor but also for the sake of being envied by neighbors and friends without realizing that we are getting into debt.
Lack of planning for an unexpected expenditure such as sudden hospitalization can also get us into debt which could have been avoided had we been prudent enough to make some provisions for such events. Other reasons include home loan, child education, family functions, travel and other needs that are perceived to be important or done impulsively.
How to pay off debts? Here are some simple steps if taken with determination can solve the problem forever.
The first step to deal with debt problem is to make up your mind with firm and unwavering conviction to get out of debt. Think of debt as an evil to be eliminated from your life forever and focus your thoughts to achieve it. Contemplate for five minutes daily on your debts and on suitable ways to get rid of them. Thoughts are powerful mental energy which if directed toward debt elimination will lay a strong foundation for your action plan to get rid of debts.
Take a decision not to get into new debts at least till all the old ones are cleared. Set a realistic time frame to get out of debt. Make a list of all your debts. Choose small short term debts which are easier to pay off and start clearing them one by one. When you clear one small debt it will encourage and motivate you to clear more of such debts.
Avoid using credit cards for purchases but use cash instead. If you do not have disposable cash for this purpose do not buy any new things to avoid increasing your debt. Try secured debt consolidation loan with lower interest rate to pay off small short term loans with higher interest rates. By doing this you will save on interest amount.
The best option is to get free consultation from experts in credit counseling. There are some good professional companies that give you free advice to help you cope with your debt.
There are also many scam companies out there that lure you into their trap by displaying catchy advertisements but charge high initial fees which might leave you in worse financial condition than before. They are not interested to help you solve your debt problem but like to get the start up fee from you for their advices by luring you with promises they can not keep. Once they get your fees these companies are not interested in you or your debt problem any more and will desert you.
How to choose the right company for guidance and avoid scams? It is easy if you follow certain guide lines.
Characteristics of genuine debt relief company or agency
The credit counselor from the genuine agency will discuss the details in depth about your debts with you to evaluate your financial position and this process should take at least 30 minutes.
The charges of a genuine debt relief company or agency will not be more than $50 start up fee and $25 monthly maintenance fee.
The company should be a member of the organization ‘Better Business Bureau’ or BBB for short.
You will be given a customized debt relief plan suiting to your debt situation.
Genuine companies do not over charge or over promise to lure you.
Good companies readily give free information regarding their services .
They will take personal care to teach you budgeting skills needed to pay off your debts.
Characteristics of scam debt relief companies or agencies
These scam companies will promise you a negotiated one-time settlement with all of your creditors for reduction of interest rates so that your debt principal is reduced by 50 to 75 percent resulting in considerable reduction of monthly payments.
All scam companies will have a high start up fee such as $499.
These companies are only interested to collect the initial start up fee from you and once it is accomplished, you will not hear from them.
They will be vague about the fees and will not agree to give written details or assurances regarding their debt relief plans.
These scam companies will not have BBB membership.
They do not give free information regarding the services they provide.
They do not care to teach you money management or budgeting skills
The following points may be of help.
Always do due diligence about the debt relief company before joining. Do not believe blindly what they say but take time to cross check because it is your duty to safeguard yourself against getting scammed.
Look for complaints against the company in BBB or local consumer protection organizations . They will give you the details of complaints if any against the debt relief company.
Make inquiries in your state Attorney General office whether the company is licensed to work in your state.
Do not believe oral promises, instead insist on written information about their services and look for hidden fees.
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Take time to go through the contract carefully to avoid unpleasant shocks later.
Beware of credit repair companies that promise to get you good credit report for a fee even though you have bad credit record because it is impossible to alter your credit record. As per US law they are prohibited to charge fees before rendering a service. The only way to have a good credit record is to pay back your debts sincerely.
There are some credit repair agencies that may guarantee a loan to lure you if you pay an advance fee ranging from $100 or more. This is against established rules which forbid any fees till the guaranteed loan is disbursed. Good companies do not guarantee a loan or ask for an advance fee for this purpose. They charge only the appraisal fee which is nominal and reasonable. Do a background check on these companies before using their services whether they are genuine or not. Demand to know from them the type of services they render in detail and also the fee structure in writing beforehand. There are also some debt relief companies that file for bankruptcy without informing you or hide the fact that they are using your house as collateral resulting in unpleasant consequences for you. So do not believe what they say ,instead go through the contract minutely to avoid shocks later.
Do not allow the debt collectors to harass you as they are forbidden by US laws to use unfair practices such as harassing you by foul words or other unfair means. They are also forbidden to contact you in person or through phone after 9 pm and before 8 am or contact you in your work place if your employer objects to it. They are also bound by law to honor a written request from you to stop contacting you if you so desire. If you want to avoid credit collectors, contact your creditors in the beginning itself when you find it difficult to pay and explain to them your problems and try for modification in your payment plans so that the installment is reduced to a manageable level. This should be done before they hand over your case to debt collectors.
As far as auto loans are concerned, in case of non payment of dues, the creditor is allowed to repossess the automobile without any notice and you will have to bear the cost of towing and storage costs if you want it back. The better option will be to sell the car yourself and pay the dues if you have payment difficulties to avoid negative credit report and also the accompanying repossession charges.
If you are facing difficulties in the payment of mortgage loans, it is better to contact the creditors regarding your financial difficulties and ask for rescheduling of your payment plans to suit your needs which may entail additional burden on you in the form of extra charges. You may also ask for short term recovery suspension if agreeable to your creditor and most are amenable to this if your case is genuine but may increase your installment amount to make up for the lost recovery period. Some creditors may also agree to time extension for loan recovery in which case your installment amount may remain the same but for a longer period which can be worked out. If this is not possible go in for free mortgage counseling by an authorized agency in your area to find a solution.
You also have the option to avail credit counseling from good credit counseling companies who specialize in such matters as they have trained and certified credit counselors well versed in debt management. Discuss your problems with them to find a way out. These counselors sit with you to study your financial situation and recommend appropriate customized solutions for you. These sessions may last for an hour or so depending on the gravity of your situation. Most of these companies are non profit in nature and render very good service free of charge or for a nominal and reasonable fee. But some of these so called non profit companies may have hidden fees or ask you for voluntary donations and may prove to be costly and so you must exercise caution when dealing with them.
You may choose Debt Management Plans or DMP for short if you have many loans and are unable to pay them. This option should be chosen after a through study of your debt situation by a certified credit counselor which may take hours. DMP involves monthly payments from you to a reputable and authorized credit counseling organization which in turn pays your dues to various creditors of unsecured loans such as student loans , medical bills, credit card debts. If you opt for DMP you may have to give an undertaking not to avail any new loans till the old ones are cleared. Such companies discuss your situation with your various creditors and most of the times the interest rates of the various loans are reduced to make it more bearable. This should be cross checked by you with your creditors. These companies also teach you money management and budgeting skills so that you will be careful and become credit worthy again. You must be wary of companies that enroll you in a DMP without reviewing your financial situation, or ask for voluntary donations or charge you high start up fees.
Debt Consolidation is the process of consolidating all your other debts into one secured loan tied to a collateral such as your house. The advantage of this is that there is no botheration to keep tack of various loans which has become one. The other advantage is that the interest rate may be reduced because the loan is secured now compared to unsecured loans. You may also get certain tax benefits. The only disadvantage is that you may lose your house if you do not pay the loan dues.
The least respectable way to solve your debt problem is to apply for bankruptcy which should be attempted as the last resort due to it’s far reaching repercussions. Bankruptcy is the legal way of getting out of debt without paying for those who can not pay back their debts and gives them a fresh start in life. Those who are declared bankrupt are exempt from paying certain debts. But the bankruptcy information remain in their credit report for ten years and may stop them from getting credit, getting insurance , purchasing a house and even affecting your chances getting a decent job. Bankruptcy generally does not exempt student loans, taxes ,alimony and child support.
Before applying for bankruptcy one is required to have credit counseling from a government approved credit counselor before six months from the date of filing bankruptcy. You are also required to undergo “means test” to make you confirm that your income does not cross a certain limit if you apply under chapter 7. This amount differs from state to state.
There are two types of personal bankruptcy according to US law namely chapter 13 and chapter 7 and both should be filed in federal bankruptcy court. Both the types permit people to keep certain properties and allow people to get rid of unsecured loans and stop repossessions, foreclosures and debt recovery.
Under chapter 13 instead of surrendering any property, the court devises a repayment plan and permits you to use your future income to pay your debts within 3 to 5 year period. Once you pay back your debts during this period you get a discharge from your debts. This chapter allows people with regular income to have property such as car or a mortgaged house.
Bankruptcy under Chapter 7 is called straight bankruptcy, which entails selling of all non exempted assets. The properties that are exempt include household furnishings , tools and vehicles. Under this chapter 7 you receive discharge of debts but have to wait 8 years before filing again. Some of your assets may be handed over to your creditors to be sold and the proceeds used for loan recovery.
Debt Negotiation Programs by some companies are mainly meant for unsecured debts such as credit card debts for which these companies claim to negotiate with the creditors on your behalf for reduction of debt. If your credit card debt is $5000, these companies negotiate for a lesser amount say $2500 for paying off. If you use such programs your credit report may be adversely affected barring you from getting any future credit. You must choose this option as the last resort like bankruptcy. You must also verify the credentials of the company before using their services. Another thing to bear in mind is that the creditors may not agree to this arrangement and may take you to court for the unpaid debt and if they win the law suit they may garnish your monthly income or put a lien on your house. Besides debt negotiation companies may charge you exorbitant fees which may defeat the very purpose of taking their assistance.
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