If your monthly debt payments, excluding mortgage or rent, exceed 20% of your income, your debts are a serious problem requiring action. Here are some basic alternatives for getting out of debt:
- Do it yourself
- Debt consolidation
- Credit counseling
- Bankruptcy
Do it yourself
The do it yourself approach may include steps such as negotiating with your creditors, paying off debts with the highest interest rates first, obtaining a second job, and cutting up your credit cards. Many people lack the self-discipline to follow this approach.
Creditors sometimes are willing to negotiate lower payments or interest rates, or waive late charges and other fees, because they realize that it's better to receive some of the money owed than none of it. But do you have the ability and temperament to conduct difficult, time consuming negotiations yourself?
Debt consolidation
In a typical debt consolidation, you consolidate your existing debts and mortgage payment into one, larger mortgage payment, sometimes at a lower interest rate. You take out a loan, often using your home as collateral, the lender sends you a check and you pay off your creditors. But don't fall behind�you could lose your home!
If you have a habit of buying on credit and carrying large balances on your credit cards, debt consolidation won't fix your underlying spending problem. Also, you remain solely responsible for paying your own bills and negotiating with creditors.
Credit Counseling
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