If you feel as if you were slipping into a sinkhole of debt, don’t despair. No matter how much trouble you’re in, there is a debt solution that could help. We’ve read of people who were more than $100,000 in debt and managed to claw their way out. So, take heart. Check out these debt relief options and I’m sure you’ll find one that could help you tame your debts and enjoy a less stressful life.
Just as there are counselors who help people with marital problems or with anger management, there are counselors available to help you with your debts. These are called credit-counseling agencies and there’s probably one or more in your area. If not, you can search Google on the term credit counseling and will find plenty of alternatives. If this option appeals to you, you would sit down with a credit counselor would analyze your finances and help you develop a payment plan. This plan would be submitted to your creditors for approval. If they all approve it, you would be relieved from the job of having to pay them. Instead, you would send the counseling agency one check a month and it would pay your creditors.
Increase your earnings
The couple that climbed out of $100,000 in debt used second jobs along with frugal living to accomplish this. You could increase your earnings by taking on extra shifts where you work or a second job. Working extra hours isn’t much fun but then neither is being heavily in debt.
If you have equity in your home, you could do a refi or get a homeowner’s equity line of credit or a second mortgage and use the money to pay off your debts. If you owe a lot and don’t have enough equity in your house, you’ll have to try to get an unsecured loan, which will be both difficult and expensive – in terms of the interest you’ll be charged.
Tap your retirement savings
Do you have a retirement account such as an IRA or a 401(k)? It probably would allow you to borrow up to $50,000 or half of what’s in your fund. You could use this money to pay off your debts and would have five years to repay it. You would be required to pay interest on the money you borrowed but, and here’s the neat part, you’d be paying interest to yourself. The one negative of this is that if you were to leave your employer before you finished paying off your loan, the money could be treated as a regular distribution and taxed accordingly.
Snowball your debts
There is a strategy for dealing with debts called “snowballing.” The way this works is that you organize your debts from the one with the largest balance down to the one with the smallest. Your next step is to do everything you can to pay off the debt with the biggest balance while making the minimum monthly payments on your other debts. Once you have paid off the debt with the biggest balance, you will have freed up money you can use to pay off the debt with the second largest balance and so on. Alternately, you could choose to pay off the debt with the highest interest first and then move on to the one with the next highest interest rate.
If you’re a good negotiator and have not made even the minimum monthly payments on your debts for six months or longer, you could contact your creditors and offer to settle your debts for one-time cash payments.. If you can convince your creditors that you are in dire financial straits, many of them will agree to settle for pennies on the dollar. The one negative of this is that you would have to have the cash available to pay the settlements – which is why many families choose to contract with debt settlement companies to handle the settlements for them.