Debt Out of Control? Here’s What You Can Do About it

If you have a considerable amount of debt, there are many options for you. The first thing you should do is obtain a copy of your credit report so that you know where you stand with current and potential creditors. Be sure to report any errors to the credit bureaus and pay off any delinquent accounts. Always pay at least the minimum on your credit cards, and don’t max out your cards. The balance should be less than half of your credit limit. You can get free access to credit reports once a year by visiting www.annualcreditreport.com.

Perhaps the smartest and most popular method of eliminating debt is consolidation. With a debt consolidation loan, all of your debts are paid off and you make just one monthly payment to one loan, rather than having to deal with multiple creditors. If you have student loans, consolidate them first.

If you are a homeowner, you can apply for a home equity loan. Be sure to shop around for the best interest rate before you close on a loan. The two biggest factors in determining interest rates are credit and location. If you have bad credit, banks perceive you to be a bigger risk and therefore will charge you a higher interest rate. Check the rates for your area and compare them to the national average. For instance, interest rates in Nebraska are comparable to the national average, whereas rates in Alabama are higher.

If you do not own your own home, consider a signature, or unsecured, loan. A signature loan does not require you to provide collateral to secure the loan, but you must prove that you can repay the loan. The loan is repaid in monthly installments just like a car or home loan.

Another option is to open a personal line of credit. This works much like a home equity credit line, except it’s unsecured. The bank gives you a credit limit, which you can borrow against whenever you need the money. Each month you receive a statement showing your balance and monthly payment amount. You can repay all or part of the balance each month and continue to withdraw funds from the account as long as you have not reached your credit limit. Benefits of a personal line of credit are that the interest rates are often lower than the interest on credit cards and there usually isn’t a yearly fee.

You can also refinance your auto loan. If you have bad credit and are paying a high interest rate on your car loan, auto refinancing is the best thing you can do. Many financial institutions will let you finance a car if you have poor credit or no credit. The problem is that they charge higher interest rates than they do for those with good credit. If you can, improve your credit rating first and then apply for auto refinancing.

There are also some debt cures they don’t want you to know about, like showing an income statement and balance sheet to your creditors. This shows them that you don’t have enough money to pay your bills, and you may be able to negotiate for lower balances or payments. You can also contact your bank and ask for a lower interest rate.

As a last resort, you can file for bankruptcy if your debts are out of hand. Only do this if you’ve exhausted all your other options. Bankruptcy will relieve you of your debt, but will ruin your credit, and you must re-establish your credit afterward. Make sure to research the different types of bankruptcy and that you choose the best type to suit your financial needs. After you declare bankruptcy, your information is made public record, and marketing companies can include this information in their bankruptcy mailing lists. You may begin to get a lot of offers from potential lenders through the mail after you’d declared. There is hope even if your debt seems out of control; just take your time and do your homework first to make sure you’ve chosen the best method for reducing or eliminating your debt.