While debt has become a popular way of life for a majority of American citizens, some form of credit can build your financial profile but there are also others that come at a heavy cost. If all due diligence is observed when using debt, it can help you acquire important investments like education or a dream home.

Unlike in the former years, debt has taken the young Americans by storm. In most cases, the starting point is the innocent usage of credit cards which eventually gets out of control and turns into a disaster the moment circumstances change for the worse. For most people, consumer debt is a necessary option that offers convenience as far as household expenditure is concerned.

Financial obligations and household bills notwithstanding, it is evident that people are using credit to make purchases at Porsche restaurants as well as fulfill the insatiable desire for the designer outfits. By the time most people realize it, the debts have already accumulated and the brain gets into the panic mode. The good news is that you can find viable solutions no matter how deep you’ve plunged into the debt trap. In this article, you’ll learn about some useful options you can utilize to climb out of debt.

Create a realistic budget and contact all your creditors

If you are looking for the easiest and most convenient method of eliminating your debts, taking the matter into your hands and becoming proactive maybe just what you need. More often than not, this will fix the debt situation in the long-run.

When you are crafting the budget for the purpose of clearing your debts, you should always start with recording all your debts in the order of significance. The budget must encompass your total income as well as the expenses. After recording all your expenses and income, take some time to identify the various ways that you can employ to cut back on your overall expenses. Similarly, figure out applicable methods of raising your total income. After this, you can revise the budget to reflect what you are willing to give up in order to free some dollars.

The budget will act as a roadmap guiding you to commit a certain amount of cash that will be used to settle the debts. At this juncture, it’s wise to categorize the debts from the most expensive to the least expensive. The available funds may be used to deal with expensive debts first to ensure the burden gets lighter.

When you are certain of the amount available for debt repayment, you can then speak to your creditors and tell them exactly how much you are willing to pay. You can negotiate for a reduction of the loan payments among other solutions.

Debt management plan

When you are using a debt management plan, the main objective is determining how much money you can dedicate towards servicing your debts and the agency will take over and ask your creditors to give you a better repayment program. In most cases, the credit agency can successfully talk the creditors into nullifying all the penalties and additional fees you owe. In some cases, you can get all the interest rates forgiven which implies that you’ll be paying less in your periodic payments.

If you decide you want to go this route, you’ll be making some predetermined payments to the credit counseling agency in question which will, in turn, hold the money in a trust account. Besides paying off your creditors, they will also deduct a fee for the services offered.

Before you venture into this option, it’s wise to ensure you are working with a genuine credit counseling agency to avoid disappointments.

Debt consolidation

The idea here is to find one loan which has lower interest rates than what you would pay on your existing debts. Since your debts are combined into one, you can have an easier time making the payments while reducing the interest rates.

Since there are multiple providers, it’s quite easy to find a provider willing to offer you lower rates. In addition, debt consolidation experts have the know-how to negotiate for better payment amounts so the burden will be lighter. Nevertheless, this option is not available to everyone because individuals with low credit scores may have a difficult time qualifying.

Debt settlement

This option is good for individuals with huge debts but they have run out of options. Here, the debt settlement service provider tells you to pause the loan payments and divert the payments into their account. Then they will talk with your respective creditors while the debts are accumulating.

The game plan here is to drive the creditors into panic mode and if they are afraid that they might not get anything, in the end, it’s likely that they will accept to take a lesser amount and forego the remaining amount.

However, you should be careful when using this option because the creditor can still collect the debt while you are engaging in the negotiations. In addition, you may end up damaging your credit scores not mentioning the possibility of a bloated debt should the creditors refuse to take the bait.

Bankruptcy

If you are certain that you can’t pay the entire debt, it can be futile to consolidate your debts or even initiate the debt management plans. Before you resort to bankruptcy, you must consult a legal expert and find out if you are qualified.

In most cases, bankruptcy can eliminate most forms of debts but you must be ready to go through the entire process which may take up to four months. However, this won’t help you escape accumulated taxes or outstanding student loan.

If you don’t mind damaging your credit scores and you are comfortable with the bankruptcy hanging on your report for more than five years, then it could be right for you. Nevertheless, it’s never a good idea if you have some property that you don’t want to give up ownership.

Final words

Basically, debts are different and as such, they call for different strategies when trying to eliminate them. Depending on the type of debt you are facing, you can choose the most appropriate way to handle the situation. If you are dealing with some complicated debts, it’s always good to seek advice from a debt expert who can analyze your specific situation and advise you accordingly.