Thursday, January 3, 2013

Ways to Become Debt Free

debt freeWe live in a society where consumerism is often supported and promoted. In pretty short order, debt is accumulated and many people find they are in over their heads. Unresolved debt can cause an extreme amount of stress and anxiety. The best way to obtain debt relief is to have a plan. The following are ways that you can work toward becoming debt free:

Pay More than the Minimum Required Payment-
The first goal in credit card debt reduction is to get out of the habit of paying the minimum monthly payment. When you pay the minimum, which is typically only 3% of the total balance, only prolongs paying the debt completely off. The banks love when consumers only pay the minimum because they are able to continue to profit from the accrued interest. Instead of paying the minimum, pay as much as possible toward the balance each month. You may have to make a few sacrifices in order to have enough cash, but it will be worth it when you see your total balance decrease each month.
Cash Out Your Savings
Although depleting your savings may not be the wisest strategy, it may be a viable option if you have excessive debt. Keep in mind unpaid debt accrues interest so leaving funds in your savings account could mean that you end up paying more to resolve debt. As of right now, the interest earned on a savings account is minimal so the money may be best used to decrease or eliminate debt.
Borrow Against Your Life Insurance
If you have a life insurance policy with a cash value, you may be able to borrow against the policy. Because the interest rate, in most cases, is well below the commercial rate, you will be able to pace yourself to repay the loan. It is extremely important that the funds be repaid because if you die before it is repaid, the balance in addition to applicable interest will be deducted from the face value of the policy. This suggestion requires a great deal of thought, your age, health and overall financial situation must be considered before borrowing against your life insurance policy.
Borrow From Friends and Family
If you are fortunate enough to have family who will lend you money, you could make a dent in your total debt without the risk of borrowing against your insurance policy or depleting your savings. Although family may be more lenient than a traditional bill collector, keep in mind if the money is a loan, it must be repaid. Misunderstandings about money can cause a great deal of drama in a family so paying the loan back within the requested amount of time is best.
Get a Home Equity Loan
If you own home and have accumulated equity, you may want to consider a home equity loan or line of credit to pay off outstanding debt. A home equity loan is a tax deductible item, and you may benefit from the current low interest rates. Please be aware that the line of credit is also considered debt and if you use the funds to pay off revolving credit, you must make an effort to not get in deeper debt.
Settle Your Debts
It may be possible for you to renegotiate the terms and balances of your debt with creditors. If you do not feel you have the skills necessary to negotiate, you can seek the assistance of a reputable debt settlement company. If you are handling the settlement, be sure to let the creditors know your situation. Inform that if you are unable to renegotiate and settle your debt, you may have no choice but to file for bankruptcy. Be sure to get all settlement agreements in writing and make the payment as agreed.