Get Out of Debt - Start Today

Getting out of debt requires hard work, but once you execute your plan, you will be glad you put in the effort. Besides the peace of mind of not having debts hanging over your head, being debt-free has many other benefits:

• It helps you improve your credit score
• If you don't have debt, you don't pay interest
• You can set aside extra money in an emergency fund rather than using it to pay penalties and interest charges
• If you find yourself in a financial emergency, you have more options for dealing with it.

If you are in debt and want to get out of debt, here are some of the basic concepts associated with getting out of debt and staying out of debt.

Debt Settlement

Debt settlement programs involve credit counselors negotiating with creditors to waive fees and accept a cash sum to settle debts. In debt settlement programs, debtors send monthly payments to a debt settlement company that keeps these payments in an account. Once the account reaches a certain balance, it is divided among creditors in order to settle debts, often for less than the original debt amounts. Always research debt settlement firms thoroughly before choosing one.

Credit Counseling

Credit counseling services help people manage their debts. Some offer other services too, such as negotiating with creditors to lower interest rates, waive fees, or lengthen terms in order to cut monthly payments. Credit counseling services are regulated in some states, and some are for-profit while others are nonprofit.

Debt Consolidation Loans

Debt consolidation loans work best for people with steady income who have debts spread out over multiple sources, particularly credit cards. A debt consolidation loan is a loan for the total amount of multiple debts and is used to pay those debts off. After you take out a debt consolidation loan, unless you take on more debt, one monthly payment covers your loan. Since interest rates on credit cards average over 16%, and debt consolidation loans have much lower rates, a debt consolidation loan can save hundreds of dollars that would have gone toward expensive credit card interest.

Tackling Debt Today, Preventing Debt Tomorrow

Dealing with debt can be like going on a diet. If you go on a diet without changing your basic eating habits, you'll gain the weight back. Similarly, if you pay off debt but don't change your spending habits, you'll find yourself right back in debt soon enough. Any plan for dealing with excess debt should address your most fundamental financial habits in order to have long term beneficial effects. You don't want all your hard work getting out of debt to be for nothing, so you need to take steps to identify and change financial habits that got you into debt in the first place.

Managing Credit Card Debt

Managing credit card debt effectively is important if you want to keep overall debt under control. Reining in credit card spending doesn't just benefit your finances immediately, but over the long term as well. If you deal effectively with credit card debt, you'll see many benefits:

• Lower monthly payments required (since your balance is lower)
• Smaller ratio of credit in use to credit available, which benefits your credit score
• More options for dealing with financial emergencies since your cards aren't "maxed out"

If you're unable to stick to a plan for keeping credit card debt down, you may want to speak with a credit counselor, who can help you draw up a personalized plan that works for you.

Budgeting

It isn't glamorous, but budgeting is important in addressing existing debt and minimizing future debt. You need to know what your monthly income is, and exactly where it goes. Tracking credit card purchases is easy, but you should also record cash transactions, particularly if you withdraw cash from an ATM frequently. That cash has a way of disappearing without you noticing what you spend it on. Only after you know where your income goes can you come up with a budget that works for you and helps keep you out of debt.

Knowing your Emergency Options

An unexpected car repair or a roof leak that has to be fixed can show up at any time. The more options you have for paying for these emergency expenses, the less stressful they are. Ideally, you should have three to six months worth of living expenses in a savings account. But if you don't, if you've managed your debt and budget effectively, you'll find you have more options for dealing with financial emergencies. If you must rely on a credit card to pay surprise expenses, it's better if you've paid down your credit card balances so you can meet new expenses without going over your credit limit.

Avoiding Financial Scams

Unfortunately, there are plenty of people who take advantage of people in difficult financial situations. Anyone who makes unrealistic promises, like promising you can raise your credit score instantly, promising your foreclosure problems can disappear overnight, or promising to eliminate your debts for a hefty fee should be avoided. While some legitimate credit counseling, debt management, and debt settlement companies do charge fees, they should not be excessive. Always compare providers of financial services before choosing and you'll be less likely to lose your hard-earned money to a scam artist.

Are you Ready to Conquer Debt?

Putting off dealing with excessive debt only makes the problem worse. The sooner you seek help, the more options you'll have. By submitting the form below, you can learn about your options for conquering your debt problem. If you have financial dreams, such as

• Sending your kids to a good college
• Buying a house
• Retiring
• Starting a business

you'll be in a much better position to achieve those dreams if you get a handle on existing debt and learn how to avoid going into debt again. Getting out of debt requires commitment and hard work. You may have to take on a second job, work overtime, or defer purchases while you work to eliminate debt. But once you do, the feeling of accomplishment can't be beat. You owe it to yourself to start dealing effectively with your debt today.

Sources:

http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre19.shtm
http://financialplan.about.com/od/creditdebtmanagement/tp/credit-debt-101.htm
http://www.financialaid.uconn.edu/literacy/index.php/Dealing_with_Debt
http://www.bankrate.com/brm/news/cc/20031007a1.asp