Debt seems to be the one thing that Americans have in common. Almost everybody, from the working poor to multi-billionaires, has accumulated a staggering amount of debt they need to pay off. But people often struggle to do so because they are unaware of all the debt relief options available to them.
Americans have amassed $1.3 trillion in student debt alone, with 44.7 million people owing an average of $37,172, according to the Federal Reserve. But this is just the tip of the iceberg; U.S. households owe $1 trillion on credit-card and auto loans.
Not surprisingly the average American household owes $132,529 in debt, an amount that has increased by 11% (or $14,578.16 per household) over the past 10 years.
Yet polls indicate that Americans are very uncomfortable with all that debt. Around 69% of consumers told the Pew Charitable Trust that they would like to be out of debt.
Yes, You Can Get Out Of Debt!
The good news is that there is a variety of debt relief options available to the average American. Most households can get out of debt with a combination of planning, self-discipline, common-sense and hard-work.
The first step in freeing yourself from debt is – to learn what your debt-relief options are. Then you can decide which one is right for you and start digging yourself out of the debt hole.
If you do not know where to begin there are a number of debt relief professionals who you can help. Debt is now such a huge problem that many people make a career helping others get out of it.
Here is a list of some debt relief options open to you:
Debt Management Plans
One of the first debt relief options is to develop a debt management plan. A person sits down with you and works out a plan for paying off the debt. The plan should include: a budget, a plan for spending, and opportunities for debt consolidation.
The big advantage to debt management plans is that they can help you get your spending under control. Even more importantly, you will learn vital personal finance skills during this process, such as budgeting. This can also lead to an improved credit score.
You can learn how to build a debt management plan by taking an online course, buying specialized software, attending programs run by churches, businesses and other organizations, reading books on the subject, or you can hire a professional to teach you how to do it.
A debt consolidation usually takes the form of a loan that pays off all your obligations. This will give you one payment with a lower interest rate that will make your debts easier to manage and pay off.
There are many debt consolidation loans available as debt relief options. Many of the lenders offer extra services, including credit counseling and debt management plans. This can help ease the emotional burden and stress of being in debt.
There are also some plans that simply replace all your payments with one combined payment, but do not offer a loan. These are often marketed as debt management programs.
Another popular debt consolidation tool is a credit card that offers a zero-balance transfer option. This allows you to pay off your debts and still improve your credit-card score.
A settlement occurs when a lender agrees to pay less than the full balance of a debt in exchange for one large repayment. Many lenders will agree to a settlement as one of many debt relief options because it is cheaper and easier than trying to collect a loan.
The biggest advantage to debt settlement is that it gets rid of the obligation fast. These settlements can also improve your credit score by wiping out records of debt.
Settlements can be hard to arrange, so most people have to hire a professional settlement company or a lawyer to negotiate with the lender. Many consolidations, management plans and consumer-counseling arrangements will include a settlement.
Credit counseling combines management, settlement and sometimes a consolidation with advice from experts called ‘credit counselors’. The counselors teach debtors skills such as budgeting and debt management.
There are non-profit credit-counseling organizations that offer these services for free. There are also for-profit counseling companies that charge, usually in exchange for a consolidation loan or management plan.
The biggest advantage to counseling is the knowledge and expertise it provides. Counseling is ideal for younger people and those with less experience with personal finance. Those who understand finances will be better off doing it themselves.
Tracking Your Spending
In many cases you can gain greater control of your debts by simply tracking your spending. The advantage to this solution is that it is free; you will not have to enter into any additional legal obligations.
The best way to track your spending is to access your bank or credit card statements online, and keep a simple stock on where and what you are spending money on. Another idea is to only spend cash for a week and see how long you last.
Once you begin tracking your spending you will have an easier time creating a budget.
Budgeting is often much harder than it looks, especially for those with little background in finance. Fortunately, there are lots of good budgeting software programs out there that will track all your accounts and even do your taxes for you!
The biggest advantage to budgeting software is that there will be one record of all your spending in one place. Another benefit is that most software is far more accurate than you will be, so you will get a clearer picture of your finances.
Refinancing, Second Mortgages and Home Equity Loans
If you have a substantial amount of equity in your home you can use refinancing, a second mortgage or a home equity loan to pay off your debts. The big advantage to this is that you should be able to substantially reduce your interest rate and payments. Another benefit is that you will have just one payment to make each month.
You should shop around and try to find the best rate because there are lots of mortgage lenders out there, and they will compete for your business if you have a lot of equity or a good credit score.
A bankruptcy is a legal process in which a judge wipes out or ‘settles’ your debts to give you a fresh start. You can choose a Chapter Seven which eliminates debts, or a Chapter 13 which includes a payment plan.
The biggest advantage to a bankruptcy is that the court issues an automatic stay that makes it illegal for creditors to talk to you. Instead, they will have to talk to your lawyer which can make life much easier.
There are many debt-relief options out there, and with a little research you should be able to find the one that is right for you.
Need More Advice?
If you need some assistance, you can hire a private company with experience in helping people achieve debt relief. Call 844-669-4407 to discuss budgeting, refinancing, and other debt consolidation options.