Whether you know it or not, we're getting worse and worse about debt, especially credit card debt. One recent study revealed that the average American cardholder has 3.5 credit cards and that the average debt per cardholder is $5,100. Plus, the median interest rate on credit cards is now 12.5%. In short, being in debt has become as American as hot dogs on the 4th of July.
Struggling with debt
If you're struggling with a huge amount of debt it can feel like fighting with a punching bag. You hit it over and over but it just keeps bouncing back. Of course, you could eliminate many of your unsecured debts by filing for bankruptcy but this would leave a serious stain on your credit report (and credit score) for years to come. If you were to file for a chapter 7 bankruptcy, you could even lose some of your most prized possessions as they could be seized and sold at auction to satisfy your creditors. And it might be years before you could qualify for a conventional mortgage or auto loan.
Borrow from yourself
In the final analysis, there are only two true ways to get out of debt without filing for bankruptcy. First, you can find some way to pay off your debts. For example, you might be able to get the money from your retirement fund. If you have a 401(k) plan, you might be able to borrow from it and you'd then be paying yourself back instead of some bank or credit union. Do you have a whole life insurance policy? If so, it's possible that you could borrow enough from it to pay off all your debts and you'd never have to pay back the money unless you just wanted to.
Settle your debts
You could pay off your debts with a strategy called debt settlement. The simplest way to explain this is that you contact your creditors and offer to settle your debt for less than you actually owe. Before you do this, you will have to have stopped paying on your debts for at least six months. You'll have to be a very sharp negotiator and will need to have the cash in hand to immediately pay the debts you settle. While debt settlement will have a negative impact on your credit score, it won't be as serious as if you had filed for bankruptcy. And it is a proven way to get out of debt.
To manage your debt
It might be very difficult to get out of debt but there are ways to better manage it - to get some of the stress out of your life. The first of these is consumer credit counseling. There may be an agency in your area that offers credit counseling. If not, you should be able to find one online.
Whether you go to a credit-counseling agency in person or find one on the Internet, they work about the same. You will have a credit counselor who will review your earnings, assets, expenses and debts and help you devise a plan for paying off your debts. Your counselor will contact all of your creditors and attempt to negotiate a cut in your interest rates and for them to accept the payment plan the two of you created. Once all your creditors approve the plan, the credit counseling agency will assume responsibility for paying them, and you'll send it a payment every month until you have completed the plan. This generally requires five years.
Get a loan
A second alternative to filing for bankruptcy is to get a loan and pay off all of your creditors at once. This is often called a debt consolidation loan because you consolidate all of your outstanding debts into one loan payment. Depending on your circumstances, you may be able to get an unsecured loan. If not, you'll have to apply for a secured loan, which will probably be a second mortgage or homeowner's equity line of credit (HELOC). Like credit counseling, you will have only one payment to make a month and it should be lower than the sum total of your current payments. However, it will likely require anywhere from seven to 10 years to payback the loan.
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