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7 Good Ways To Become Debt Free

You just can’t bring yourself to go through today’s mail. You know what’s waiting – yet another credit card statement with a balance you can’t pay. You also dread it when the phone rings, as you know it will be a debt collector calling to harass you. You know your debts have spun out of control and you don’t know which way to turn. The good news is that if you apply yourself using one of these seven proven techniques, you can become debt free and in a reasonable amount of time.

Go to a consumer credit counseling agency

It’s likely that there is a credit-counseling agency near where you live. If not, it’s easy to find one on the Internet. The best of these agencies are nonprofits so that they don’t charge very much if anything for their services. The important thing is to choose one that’s honest and reputable. The unfortunate fact is that the Internet is just full of crooks, scammers and scoundrels. If you are not careful, you could pick a consumer counseling agency that is a total sham. But if you choose a good one, it will help you develop a debt management plan (DMP) that should help you get control of your spending and become debt free in about five years.

Snowball your debts

Another proven way to eliminate your debts is to snowball them. While this won’t work for secured debts such as a mortgage or auto loan, it can help you pay off your other debts. Step one in snowballing debts is to make a list of them with the one that has the highest interest rate at the top down to the one with the lowest rate. Concentrate on paying off the debt the highest interest rate while still making the minimum payments on your other debts. When you get that first debt paid off you will have extra money that you can utilize to start paying off the debt with the second highest interest rate, etc. This could help you become debt free in three years or less.

Transfer your balances

If you have a lot of high-interest credit card debts, consider transferring them to one with a lower interest rate or, better yet, a 0% interest balance transfer card. If you can qualify for one of these cards, you would have a period of anywhere from 6 to 18 months during which you won’t have to pay any interest. Since all of your payments would be used to reduce your balance, you could actually be out of debt before your introductory period ended. Of course, it will be important to not put any new charges against on that 0% interest balance transfer card during your introductory period.

Borrow money

In the event you have a retirement fund or a whole life insurance policy, you might borrow money from it and pay off your debts. This can be a very good option because you’re literally borrowing from yourself. You may have to pay interest on the loan just as you would if you got a bank loan but there’s an important difference – you’re paying interest to yourself. Keep in mind that there is a downside to borrowing from your retirement fund. It’s that the money you take out of your fund would not be growing in size and you would lose out on the power of compounding interest. And if you were to borrow from your 401(k), you would be required to pay back your fund within six months or would have to treat the money as ordinary income for tax purposes.

Get a loan

If you don’t have a well-to-do relative, an insurance policy or a retirement fund from which you could borrow money, you might be able to get a debt consolidation loan from your bank or credit union. The benefit of this is that when you use the money to pay off your creditors you will no longer have to make multiple payments every month. You will only have one payment to make and it should be for much less than the total of your current monthly payments. If you have equity in your house, you might be able to get a home equity loan, a home equity line of credit or do a refi and get a completely new mortgage. Barring that, you might be able to get an unsecured loan but this will depend on your credit standing and how much you would need to borrow.

Do-it-yourself debt settlement

This is where you call all of your creditors and offer to immediately settle your debts. For this to work you will need to be nearly six months behind in your payments because few creditors will negotiate with you until you are this much in arrears. Your settlement offers should be 40% to 50% less than you actually owe. One note of caution – in the event that you are able to settle with your creditors, you will need to have the cash in hand to pay them immediately. You also need to be a good negotiator to make this work. If you’d like to know more about do-it-yourself debt settlement, watch this video.

Hire a debt settlement firm

If you don’t feel that you’re a very good negotiator or don’t have the cash available to pay off any settlements you were able to negotiate, you might hire a debt settlement firm. If you choose this option, the company will handle all the negotiations for you and in most cases will negotiate better settlements that you would be able to do on your own. An ethical debt settlement company will charge nothing upfront and you won’t be required to pay anything until they have settled your debts to your satisfaction and presented you with a payment plan that you approve. This is a form of debt consolidation in that you will trade multiple payments to many different creditors for just one payment a month to the debt settlement company until you have completed your payment plan.

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