Dealing with Debt

When you have too much debt there are really only four options available to you.

1. Ignore the situation

a. By ignoring the situation you are letting your credit go down in flames! In the future you will have a hard time getting a car loan, mortgage or even renting an apartment. You will pay more money for the exact same item then people with good credit.

2. Debt consolidation: This can take the form of any of the following:

a. Borrowing money to pay off debt.
b. Borrowing against the equity in your home to pay off debt.
c. Credit Counseling: a service provided by both for-profit and non-profit companies who negotiate better rates with your lenders and give you one lump sum payment and then they turn around and make the payment on your behalf. The entire amount of your debt is owed as well as additional interest and/or penalties accrued

3. Debt Settlement: Debt settlement is a negotiated settlement of unsecured debt. Often for on 20% to 30% of what you owe. The draw back

a. You run a real risk of getting sued
b. Deal with nasty call from Creditors and collection agency
c. In the short term destroy your credit.
d. This process in not for the faint of heart.
e. Chapter 13 Bankruptcy: This is an embarrassing situation that can have a negative effect on your credit for 10 years or more. This will affect everything from buying a car, getting a mortgage loan to getting a job. You are required to let your employer know about past bankruptcy.

4. Debt Role up: You make a list of all your debts. Rank them by balance size and not interest rate. You start paying extra to the smallest balance you carry. Once that balance is paid off you apply all the money from that debt to the next largest balance. You continue this process until all debts are paid. This method will create a snowball effect in paying off your debt.