Most likely, you don't remember how easy it was to get your first loan or credit card. You also don't remember that your lenders rolled out the red carpet for you because they thought you would pay back your loan on time and ask for another one soon. This relationship with your lenders kept going as they gave you credit, loans, and a thank-you gift for doing business with them. But one or more things might have ruined your relationship with your lenders. You might have too much debt now, or you might not be able to make the monthly payments because you don't have a steady job. If you can't pay your bills or can't buy food because of them, for example, you might want to try one or more of these three ways to deal with debt.
Counseling for credit
This is a good starting point. You can get help with your finances from a credit counselling company. Once you have a handle on your finances, your counsellor can talk to your creditors about a plan to pay off your debt. Of course, this doesn't happen on its own; you still have to get the OK from your creditors. But your counsellor will talk to your creditors and try to work out a deal that is good for both you and them. Keep in mind that your creditors don't want you to stop paying. They would much rather work out a deal with you than have you leave town. You should also remember that once you start getting money again, your creditors might not agree unless you make some big changes. So, you need to be honest with your counsellor about your finances before she goes to your creditors with one or more debt solutions.
Paid for itself
If you have enough savings, you can pay off your debts with this money. Yes, if you use your savings to pay off your debt, this could change your future. But look at it this way: your savings probably earn between 1% and 2% per year, and you probably pay between 18% and 24% per month in interest. Even without converting the monthly rate to an annual rate, you can see that you are paying out more interest than you are earning. In other words, if the rate is 2%, you get $20 in interest every year for every $1,000 you save. This is less than two dollars a month. In the same way, if you pay off a $1,000 debt, you will save the interest that is calculated each month. Again, you can see that you are way ahead by using your savings to pay off your debt without having to do complicated math. Once your debts are paid off, you can start saving for the future.
A loan against the value of your home
If you own a home and have equity in it, you can also use the equity to get a loan to pay off your debt. This is a common way to borrow money these days, since most people have some equity in their homes because they bought them for much less than they are worth now. You might wonder why you should take such a big step to pay off your debt. But more and more people are realising that health concerns should be more important than the myths about owning a home. Why worry about paying off your debts if you have the money to do it? In a roundabout way, you got into debt to help keep the house running, so why wouldn't you use the equity to pay off the costs of keeping the house?
All of these options for getting out of debt need your full attention. If you use one or more of them, you can get out of a bad debt situation.
