Are you looking for ways to eliminate debt so you can live your life in freedom? Being in debt isn’t fun, and it can actually be emotionally distressing. For instance, you might feel like being in debt means you’re irresponsible. If that’s the case, don’t worry; nearly everyone – including responsible people – end up in debt.
The word “debt” has a negative connotation since the media is always sharing stories of people and businesses who experienced financial ruin because of excessive debts, but debt isn’t always created by a lack of responsible choices.
Generally speaking, debt isn’t always a bad thing. In fact, many necessities require taking out a loan, which means carrying around debt. For example, unless you’re extremely flush, you can’t just buy a house or a car outright. The average home in the United States costs $416,100 and the average new car costs around $48,000.
The only reason debt becomes a problem is if you can’t make your payments. And that’s not always due to a lack of responsibility. When you have to move or change jobs, or you end up taking on an extra expense, that can really put a damper on you ability to pay down existing debt. If that sounds familiar and you need debt relief, here’s what you can do.
1. Talk to a bankruptcy lawyer
There are two main ways to file for bankruptcy under the U.S. Code: Chapter 7 and Chapter 13. These are the most common filings for individuals and small businesses. Both have pros and cons, and if you qualify, it’s a decision that can bring you immense relief.
You can get a free consultation from a bankruptcy attorney with no obligations, so you have no reason to skip this step. Even if you don’t think bankruptcy is the right option, at least discuss it with a professional in the industry because they might know something that could shift your perception.
Although this is a great option for many, be prepared to pay a fee for filing. If you can’t afford the fee, it’s not usually a good idea to take out a loan to cover it since courts look down on loans taken out while a person knows they’re going to file for bankruptcy. However, an attorney can help you sort this out.
2. Consider debt consolidation
Consolidating your debt into one monthly payment you make to one company is an excellent way to get out of debt faster than usual because consolidation companies negotiate your debt down.
For instance, say you owe a total of $46,000 to three creditors. When you consolidate those three debts, the company might negotiate your overall debts down to just $7,000. In that case, you’ll pay the company a monthly fee, say, $400 per month; $300 will go to pay your debt, and $100 will cover their service fee.
Debt consolidation is a win-win for everyone because your creditors will get a lump sum of money right away, you’ll have only one payment to make, and you’ll end up paying less money over time.
3. Be cautious about debt consolidation through loans
If you’re considering consolidating your debts, be careful to research exactly how each company settles your debts. Some consolidation companies are actually loan companies, and if your goal is to get out of debt, you probably want to avoid this type of arrangement.
It doesn’t usually make sense to go into debt to get out of debt. Although, there are exceptions. For example, if you can pay off the debt fast enough and your debt gets negotiated down far enough, you’ll be saving money.
4. Keep your debt reasonable going forward
Once you pay off all of your existing debt, chances are, you’ll still need to use credit. If you do, be sure to keep your debt reasonable. Investopedia recommends following the 28/36 rule, which states that no more than 28% of your gross income should go to housing and no more than 36% should go to housing plus debts.
You can avoid some debt by buying a used car rather than new, and owning it outright without making any payments. You can find a decent car for under $10,000 if you look hard enough.
Use debt to your advantage
When you’re finally out of debt and ready to move on with your life, you can still use debt to your advantage, like taking out a business loan. Debt can be included in your financial management plan. Just be sure to keep it to a minimum and always make your payments on time.