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Are you so deeply in debt you feel as if you had a huge boulder strapped to your back? Being in trouble with debt can cause stress that might even be affecting you physically. You might be experiencing an irregular heart beat, developing an ulcer or suffering from insomnia – all because of that huge boulder of debt.
Can your borrow your way out of debt?
One way to get out-of-debt under control is to borrow money and pay off your debts. This does offer several benefits, not the least of which is that the new loan should have a lower monthly payment than the sum of the payments you’ve been making. The new loan will most likely have a lower interest rate than your existing debts – one of the reasons why your payment will be lower.
The downside of borrowing money to pay off debts
The biggest downside of borrowing money to pay off debts is that, as the old saying goes, you can’t borrow your way out of debt. If you had $20,000 in debts and were able to borrow $20,000 to pay them off, you would still owe $20,000. Plus, you would probably end up paying more in interest charges over the life of the loan because you would be paying on it so much longer. For example, if you were to get an equity loan to pay off the $20,000, it could take you 10, 15 or even more years to pay it off.
Consumer credit counseling
Another popular way to pay off debt is by going to a consumer credit counseling agency for help. There are probably several institutions near you that offer credit counseling. Community colleges, universities and credit unions often offer it. You might be able to find an agency such as the Consumer Credit Counseling Service (in our city), which is a nonprofit and does nothing but consumer credit counseling.
A debt management plan
Consumer credit counseling has several advantages. For one thing, it does not require you to borrow any more money. What will happen instead is that you will have a counselor who will go over all of your finances, help you develop a budget and work with your creditors to get your interest rates reduced. The two of you will work together to develop a debt management plan (DMP) that he or she will present to your creditors for approval. If they do approve your plan, you won’t have to pay them anymore. You will send one check a month to the credit counseling agency and it will distribute the money to your lenders.
Five long years
Consumer credit counseling can certainly be a good way to get debts under control and to eventually become debt free. However, eventually is usually five years, during which time you will need to live on a very strict budget and not take on any new revolving credit. Many people are unable to complete their debt management plans, either because they are unable to stay on a very strict budget or they eventually decide they can handle a debt management plan themselves.
Debt negotiation or debt settlement
A third way to become debt-free is through what’s called debt negotiation or debt settlement. This has become a very popular way for families to handle their debts because it’s the only option that can get debts reduced. For example, a good, ethical debt settlement company such as National Debt Relief is usually able to settle a client’s debts for literally pennies on the dollar. In turn, this usually makes it possible for their clients to become debt-free in 24 to 48 months instead of the 60 months typically required by a debt management plan.
No upfront fees
If you decide to investigate debt settlement, be sure to pick a company that doesn’t charge any upfront fees. In fact, it has been found that almost all companies that charge upfront fees are swindlers. The best of these companies charge nothing until they settle your debts to your satisfaction and present you with a payment plan that you approve.
