7 Strategies To Get Out of Debt

7 Strategies to Get Out of Debt

First Step: Understand Where You Stand

1. Assess the Situation

• List Your Debts: Write down all debts, including creditor names, amounts owed, interest rates, and due dates.
• Understand Your Finances: Add up your income, expenses, and debt-to-income ratio. This gives you the big picture.

2. Create a Budget: Track Spending: Find unnecessary expenses you can cut.

Step 2: Choose a Repayment Strategy or a Combination of These 7 Strategies

1. Debt Snowball Method
   1. How It Works: Pay off the smallest debt first, then move on to the next smallest.
   2. Pros: Builds momentum and motivation.
   3. Cons:
      • Higher Interest Costs: By focusing on the smallest debts first, higher-interest debts may accrue more interest over time, increasing the total cost of repayment.
      • Slower Debt Elimination: Large high-interest debts may take longer to pay off since they are addressed later in the plan.
      • Psychological Pitfalls: If the person gets too focused on small wins, they might lose sight of the overall goal of reducing total debt efficiently.
      • Risk of Overconfidence: Early successes might lead to less disciplined spending, delaying debt repayment.
      • Bad Credit: If you don’t make at least minimum payments on all your debt, all the time, your credit could be ruined. Credit card will likely go up to 29% compound interest with quickly can become unmanageable.

1. Debt Avalanche Method

1. 1. How It Works: Pay off debts with the highest interest rates first to save money over time.
   2. Pros: Saves on interest.
   3. Cons:
      • Lack of Early Wins: Progress may feel slow, especially if the highest-interest debt is also the largest. This can lead to frustration and reduced motivation.
      • Requires Strong Discipline: Without small victories, it can be harder to stay committed, particularly for individuals who struggle with financial habits.
      • Impact on Cash Flow: Focusing on large, high-interest debts might leave less money for day-to-day expenses, creating financial strain.
      • Risk of Abandonment: If motivation wanes or unexpected expenses arise, the plan might be abandoned, delaying debt repayment.
      • Bad Credit: If you don’t make at least minimum payments on all your debt, all the time, your credit could be ruined. Credit cards will likely go up to 29% compound interest which quickly can become unmanageable.

3.     Negotiate with Creditors

• • What You Can Do:
    • Ask for lower interest rates or more affordable payment plans.
    • Offer to settle for a lump sum at a reduced amount.
      • Pros: Sometimes, creditors agree to reduce your debt by 20%-50%.
      • Cons:

• • • • • Negative Reporting: If you settle a debt for less than the full amount, it may be reported as “settled” rather than “paid in full,” which will lower your credit score.
        • All Credit Negotiating Companies will want you to be at least six months behind on payments as a tool to negotiate. This will ruin your credit!
        • Scams: Most debt settlement companies are VERY unreliable—research carefully!
        • Taxable Income: Forgiven debt might count as income on your taxes.
        • Not Every Creditor will negotiate with you.

4.  Boost Your Income

• Find Extra Money:
  • Take a side job or freelance work.
  • Sell unused items.
  • Ask for a raise or use a talent to make money.

5. Debt Consolidation

• Options:
  • Combine debts into one loan with a lower interest rate.
    • Hard to do with low credit.
  • Use balance transfer credit cards with 0% introductory APR.
    • Need to qualify for new, good credit cards
  • Take a home equity loan. – It simplifies payments and can lower interest rates.
    • If you use home equity, you risk losing your home.
    • Converting unsecured debt into secured debt can be risky.
    • You could lose your house if you get behind on payments
    • Must have home equity and good credit

6. Bankruptcy

• Chapter 7 Bankruptcy: Wipes out unsecured debts for those with average to low income and don’t have property over State exemptions.  Ask an attorney about this.
  • Pros:
    • Stops creditor harassment
    • Stops wage garnishments
    • Stops debt collections
    • Stops legal actions
    • Provides a chance to rebuild credit
    • Preserves mental health
    • Less strain on relationships
    • Wipes out most types of unsecured debt
    • Generally raises credit score.
    • Most are finished in about 90 days
    • Can be taken off your credit report months after completion.
    • You are eligible to buy a home in two years.
    • It affects you less the further you get from it.
    • It is relatively low cost.
    • Many lenders will work with you
    • It is in the Constitution
    • It is Biblical. See http://BibleandDebt.com

• • Cons
    • Best when you use a bankruptcy attorney
    • While it generally raises your credit score, it does put a warning on your credit report that can make interest rates higher and harder to rent a home.
    • Unless you take it off your credit report, it will stay on it for ten years.
    • You have to wait two years to buy a house through typical means.
    • In rare cases people can lose things they don’t want to lose – but it is never a surprise with a good attorney
    • Some lenders will not work with you.

• • Chapter 13 Bankruptcy: This is designed for people who make more than the average income for their family size according to their State. It is also for people who have possessions they want to keep that are over-exemptions for their state. It is also used to catch up on secure debt that is delinquent like houses and cars.
    • Pros:
      • Stops creditor harassment
      • Stops wage garnishments
      • Stops debt collections
      • Stops legal actions
      • Provides a chance to rebuild credit
      • Wipes out most unsecured debt although some payment may be necessary
      • Generally raises credit score.
      • Saves homes in foreclosure
      • Saves vehicles that have been repossessed, or will be soon.
      • It can be taken off your credit report months after completion.
      • You can buy a home & vehicle while in it.
      • Effects you less the further you get from it.
      • Can sometimes lower the amount paid on vehicles
      • Stretches vehicle payments over 3-5 years.
      • Generally pay your creditors something, maybe everything.
      • You rarely have to give a possession up, with the sometimes exception of luxury vehicles.
      • You generally can afford it.
      • It is in the Constitution
      • It is Biblical. See http://BibleandDebt.com
    • Cons
      • Best when you use a bankruptcy attorney
      • While it generally raises your credit score, it does put a warning on your credit report that can make interest rates higher and harder to rent a home.
      • Unless you take it off your credit report, it will stay on it for seven years.
      • It takes 3-5 years to complete
      • It is more expensive than Chapter 7.
      • You can’t afford many luxuries while in Chapter 13 bankruptcy.

7.   Do Nothing

• • • Pros: It’s free. Most unsecured debt falls off your credit report 7-years after the last payment unless it becomes a judgment.
    • Cons:
      • Ruins Credit
      • Can lead to Judgements that can last 20 years.
      • Creditor harassment nearly hourly
      • Inability to buy much on credit, and at high interest rates
      • No credit cards
      • Big deposits on utilities
      • Lower paying jobs
      • Lose valuable belongings
      • Hard to rent a home
      • Impossible to buy a home
      • Stress

Sheree & Kerry Cameron
Cameron Bankruptcy Law
https://CameronBankruptcyLaw.com
(919) 627-7748
sheree@CameronBK.com
Our Reviews: http://CameronBankruptcyLawReviews.com

Call Kerry Now! (919) 627-7748