Exploring Ways To Eliminate Debt
While most Americans live on credit every day
, it can sometimes get out of hand and result in financial crises. What may start out as a simple late payment can sometimes turn into two or three or missed payments altogether. Late fees and interest penalties can be added on to the balance due. Bounced checks can result in overdraft fines. Credit card balances increase as only minimum payments are made. Before long, the consumer is in debt that is snowballing faster than they can catch up. Collection agencies may get involved and tack on more fees and further damage the consumer's credit report. They get further and further behind until the situation becomes nearly hopeless. At this point, the consumer will wonder how to eliminate debt when they feel consumed by it. There are a number of ways, although none of them can be achieved overnight.
Bankruptcy
For many people, bankruptcy is one of the first considerations in debt reduction. Filing for bankruptcy is a process carried out in federal court. It is essentially a declaration by the person owing money that they are incapable of handling their finances and would like to be relieved of all responsibilities of monies owed. While it sounds simple, it is a complicated, serious procedure. The debtor should retain a competent bankruptcy attorney to ensure they are following all requirements correctly.
All debts, income and property must be listed in painstaking detail. Every secured party creditor and unsecured party creditor will be notified of the bankruptcy. They have a right to as much available money as can be paid. The secured party creditors will be paid first, once they have presented their Uniform Commercial Code (UCC) paperwork, called a UCC1. Anything left over will be carved up among the remaining debtors. This may result in repossession of items used for collateral or in liquidation of assets.
Debt Consolidation
Another method of eliminating debt is to consolidate. The simplest way is to get a loan to pay off all of the other debts at a lower interest rate. The consumer is left with one monthly payment and a smaller percentage of interest to pay off. It may take quite some time to pay off the total amount, but the interest will keep it from snowballing and the creditors will be satisfied once they receive their money.
Another type of debt consolidation is to let a private company handle it. They will negotiate with creditors and ask them to reduce payments, change payment dates or lower the total amount owed. The debt consolidation firm will take a small percentage of money and set up a payment plan for the consumer. This may result in some damaged credit, but most creditors would rather take smaller amounts over a longer period of time than risk never being paid at all.
Budget Realignment
For the consumer who cannot or will not follow one of the other routes, additional income is one means of eliminating debts owed. This may mean picking up a second or third job. Supplemental income usually pays less than primary employment and is often temporary, but is one means of paying off debt. Other alternatives include moving to a lower rent/mortgage situation or trading in a vehicle for a less expensive one.
by: Christine Harrell
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