About Getting Out of Debt

Getting into debt is easy. Getting out of debt is, unfortunately, far more complex. There are a number of avenues to get out of debt.

Significance

The modern world runs on credit. Long gone are the days when most people could live their lives without ever borrowing money. Unfortunately, the need and the easy availability of credit has made it easier than ever to get into debt over your head. Even if you are managing to pay your bills on time, being in debt can take its toll on your life in many ways.
The interest that you pay on debt is money that you don't have available to save or invest. That impacts your future by restricting the amount of money you can put toward buying a house, starting a business, fulfilling a dream or being financially stable when you retire.
The amount of debt that you carry directly affects your ability to get credit when you need it. Your income to debt ratio is one of the things that bankers look at when you apply for a mortgage or a car loan. If you owe too much money, you may not be approved for the loan, or you may end up paying higher interest rates for the loans you do get.
Being in debt may even affect you when you apply for a job or to rent an apartment. It's become more and more common for prospective employers and landlords to check your credit history when making a decision about hiring people or renting apartments to them.
Getting out of debt, or at least bringing your debt down to a manageable level is evidence that you're capable of managing your money.

Types

You've probably seen a lot of advertisements for debt management solutions of various kinds. If you're trying to get out of debt, there are several routes you can take.
Self-help is the most popular approach to getting out of debt. There are some tried and true techniques that you can use to help you prioritize your debts and pay them down until you are debt-free. This method requires a lot of self-direction and self-discipline.
Nonprofit debt counseling is another option for those who need help reducing their monthly payments or the total amount of debt that they owe. You can work with a nonprofit debt counselor who can help you look over your spending, contact your creditors and make arrangements for a payment plan that you can manage.
Debt consolidation is a popular option for people who can qualify for a debt consolidation loan. The principle is simple enough--you take out a loan large enough to pay off all of your debts at once, and then pay off the loan, hopefully at a lower interest rate and with a lower monthly payment than the combination of all the other loans.
Bankruptcy is a last resort for those who can't find any other way to pay off and manage their debts. There are several different types of bankruptcy available to individuals struggling with debt. The two most common are Chapter 7, under which all of your assets are liquidated to pay off your creditors, and Chapter 13, which allows you to work out a payment plan to pay off your creditors over two to five years.

Considerations

Before you choose a method of getting out of debt, you should consider a few important factors. These can help you make your decision.
How much do you owe? Many debt consolidation and debt solution firms will only work with you if your debt is within certain limits. Likewise, some bankruptcy options may not be available to you if your debt is too much or too little.
Are you employed or do you have a steady source of income? It can be important to be able to prove a steady, regular source of income if you intend to get a debt consolidation loan or qualify for some debt repair programs.
How much can you pay toward your debt each month? The amount that you can is a major consideration for some debt repair programs.
Do you need to reorganize your debt to make it easier to pay? A debt counseling or non-profit debt repair program can help reorganize your debts by negotiating with creditors and setting up a single payment plan.
Can you negotiate with creditors yourself or do you need help? If you have trouble talking to creditors, or if you've tried to negotiate smaller payments without success, a debt counseling program may be the right option for you.
Can you qualify for a debt consolidation loan? While a debt consolidation loan isn't always the best way to get out of debt, if you can qualify for a low-interest loan with smaller monthly payments, it may be a good choice for you.

Warning

If you decide to seek help getting out of debt, it's important that you understand the different kinds of debt relief programs available. Unfortunately, there are many unscrupulous people who seek to profit from the misfortunes of others. Debt relief scams target people who are desperate to clean up their credit and get out from under their bills. Be wary of programs that promise to erase your credit history or eliminate your debt without effort. Avoid any debt relief program that that tells you that credit collection agencies are not legally entitled to collect debt from you. Always check with the Better Business Bureau and do a web search for complaints about any debt resolution company you are considering before signing a contract. Your best bet is to work with a nonprofit debt relief company that charges reasonable fees for work on your behalf.

Time Frame

The amount of time it takes you to get out of debt depends on the amount of money that you owe and the amount of money that you can put toward your debt. Most credit repair agencies aim to have you completely out of debt in 2 to 5 years. A bankruptcy court will also attempt to work out a repayment plan that will pay off your debt in 2 to 5 years in the case of a Chapter 13 bankruptcy.

Resources

• An overview of the Chapter 13 bankruptcy process
• An overview of Chapter 7 bankruptcy proceedings
• Learn about debt management solutions