How To Get Out Of Debt

How to get out of Debt. 9 proven solutions to debt relief

How To Get Out Of Debt

Thomas Minter

Thomas Minter

In just under three years, Thomas eliminated $80,000 student loan debt by house hacking and saving 50% of his income. He works for a large engineering firm, lives in the Bay Area and is addicted to Personal Capital
Thomas Minter

Yo. This post was written by Katie McDaniel, writer, editor, business communication extraordinaire. Here, she teaches us how to get out of debt fast.

Before we go any further, the single best way to avoid falling into debt is to track your cash flow.

Personal Capital is a free tool that allows you to easily dive into your finances so that you can plan and prepare for your future. And avoid debt!

If you do not believe me, check out Grant’s Personal Capital authority post that details the value of using this free tool.

Ok, so you probably landed on this page because you are trying understand options available to get out of debt as fast as possible.

I feel you. I was in $80,000 of student loan debt in my early twenties. When my first loan bill arrived, I felt like my life was over, or at least going to hang over me for the rest of my life.

This post about how to get out of debt completely connected with me. It provides actionable solutions to help you achieve your debt relief goals.

(don’t feel like reading? Listen and follow along below)

9 Best Ways To Get Out Of Debt Fast

 

Debt sucks. Climbing out of debt can feel like an unsurmountable mountain. There are thousands of books, recommendations, reviews, and apparent expert answers out there.

However, digging through that information can also be overwhelming! When it comes to getting out of debt, the clearest solution is weighing your options side by side.

This way, you can find the best answer for your situation. The following methods are proven debt relief solutions.  See how these will impact your situation and start working toward a more secure financial future.

 

Are you struggling with debt? you are not alone. Check out these proven ways to achieve your debt relief goals. In this post you will learn how to get out of debt fast.

 

1. Lower Your Rates

 

Do you have a good credit score (700 or above)? There is a chance that you may qualify for lower interest rates on your credit accounts. Instead of researching debt relief companies for hours on end, simply call your creditors. Ask them if you can lower your interest rate. If they say yes, you could save thousands of dollars on interest and relieve some stress. Furthermore, even if they say no, there is no harm done to your credit score.

Best for: Those who are just trying to get ahead of the debt game and are not completely drowning in debt. This is generally a good starting point for those who are able to make their monthly payments. Additionally, it’s a great option for people below credit limits, but also want to save some money in the long term. Lastly, it’s an option for those who have experienced an unexpected event, such as job loss. This may warrant lower payments.

Things to consider: Even if you have a perfect credit score, one company may say yes and another may say no, depending on their policy and criteria for lowering interest rates. There may also be fees associated with lowering your interest rate or your monthly payments, so it is important to ask about the particulars when you call your lender.

 

2. Debt Consolidation

 

Having multiple debts is not necessarily a bad thing. That said, there is a good chance that you will have accounts with high interest rates. If you have a hard time staying on track with what you owe and to whom, debt consolidation may be the way to go. This debt solution will allow you to combine your debts into a single account with a single interest rate. Many times, the rate can be lower than the ones you currently have. Using an online debt calculator, and getting information from an accredited loan company, is a good starting place for deciding if you want to pursue this type of debt relief.

Best for: People whose total debt is less than 50 percent of their income and who have good credit. This reorganizes and narrows down your financial burdens into a single monthly payment, offers a lower interest rate, decreases your risk of bad credit, and helps you pay off your debt a bit faster.

Things to consider: Debt consolidation is only a good choice if you are not planning to open any new credit accounts until you get out of debt. If you want to lower the number of separate accounts just so you can get a new one, you will end up in far more debt and end up losing much more than you save. It’s also important to stick to the plan or your credit score will tank.

 

3. Debt Settlement

 

Many people find themselves in debt from only having a few open credit accounts. If you have a credit card that you have not been able to pay off and you are starting to get harassed by debt collection agencies, your accounts are not in good standing. It may be time to get some help negotiating with your lender. A debt relief company can negotiate the total amount owed with the lender to significantly slash your total amount owed.

Best for: People who only have one or two high-interest accounts they have not been able to pay off. Assuming you will make all new payments in full and on time every month, debt settlement allows you to significantly save money and pay off as little as 50 percent of your original debt in three to five years.

Things to consider: There is no guarantee your lender will accept the negotiation. If they do, your credit score will go down because you are not paying the total debt in full. You will also likely accrue interest and other fees during the settlement process, which usually takes at least six months. Depending on the settlement plan and the specifics involved, the money you save may be seen as additional taxable income when tax season comes around, and many debt settlement companies will charge large fees that result in you only saving around 10 percent of what you originally owed your lender. The good news, thanks to the Fair Trade Commission ban on upfront costs, these fees only occur once your settlement is complete.

 

4. Debt Management Plan (DMP)

 

Sometimes all it takes to lower your debt is learning how to better manage it overall. With a debt management plan, a financial counselor can help you sort through your income, essential expenses, and optional expenses, which allows you to track your spending and create a budget. They will help you determine ways to get out of debt faster, including cutting unnecessary expenses and redirecting that money towards your debt, and can even mediate between you and your creditors to create a more affordable payment plan and possibly reduce fees.

Best for: Those who are in debt but can effectively manage it with a little better planning. Debt management plans are a great solution for people who mainly need a lesson on bettering their finances and are looking for actionable, long-term solutions to stay out of debt for years to come. Unlike many other debt relief solutions, a debt management plan will also help you increase your credit score so that any future credits will have lower interest and better terms.

Things to consider: It is crucial to use a DMP company that has a proven track record of helping consumers. Depending on the company, there may be additional fees associated with using their services, and you may also be advised to refrain from opening any new credit lines or using existing credits while in your repayment period, which generally takes up to 60 months. If you drop out of your debt management plan after agreeing to its terms, your interest rate could go back up higher than what it was originally and you could also be charged additional fees. 

 

5. Frugal Living

 

Not every debt solution requires outside help. Sometimes, the biggest expenses come from within your home. Getting in the habit of unplugging electronics and appliances, shopping less, couponing, and even cutting down on how often you eat at restaurants and getting your caffeine from coffee shops can save thousands of dollars a year. Try categorizing your monthly expenses, either by hand or with budgeting software, to work on narrowing down areas where you can cut costs. If you need help, remember that DMP companies are there to advise you.

Best for: People who are not in severe debt with multiple loans, credit cards, and bills. Frugal living can help you invest more money into paying off your bills and less money on outside activities. Along with saving money, frugal living also teaches important management skills and can help prioritize other facets of your daily life.

Things to consider: Those who are in hundreds of thousands of dollars of debt should not automatically resort to this option. It is also important to remember that this is a lifestyle change and can be difficult for people who need to substantially cut costs.

 

6. Student Loan Forgiveness

 

Higher education is notorious for racking up debt. On average, students accrue more than $30,000 in debt and that amount increases dramatically depending on the degree and program. Those who are indebted to student loans and work at non-profits, for the government, or in the public sector can apply for Public Service Loan Forgiveness. Additionally, teachers can apply for Teacher Loan Forgiveness, while borrowers with qualifying permanent disabilities can apply for Disability Discharge Student Loan Forgiveness. Through each of these programs, students and former students may be able to have all or most of their loans forgiven after they meet certain criteria.

Best for: Those with large student loans. The programs listed above are just a small selection of the dozens of options available. Nurses, medical professionals, and military personnel are among the groups that can usually find other student loan forgiveness programs through their employers, by searching online, or working with a financial counselor.

Things to consider: While the eligibility requirements for each of these loan forgiveness programs differ, they are generally for those who work in professions that actively give back to the community, and individuals usually only qualify after a certain amount of time. Some programs, such as Public Service Loan Forgiveness, are only available after you have made 120 concurrent payments and work in specific fields. Many of the programs are usually only for U.S. citizens and the approval process can take months.

 

7. Consider Additional Income

 

By taking up freelance work or a part-time position, you can earn additional money that can go straight toward paying off your debts. Of course, this will also build your resume, and temp positions are great if you only want to take on extra work until your debt is more manageable or paid off entirely. You could also consider doing a clean sweep of your home to sell and downsize your belongings for some extra cash. There are plenty of times where even selling old clothes, cell phones, textbooks, and appliances can add up to hundreds or even thousands of dollars.

Best for: Those who are not already overwhelmed and stretched thin in their professional and home lives. The income earned from working part-time or selling items should be used solely for paying off debts in order for this method to work.

Things to consider: If you have a large family or numerous obligations, getting a part-time job or freelancing can be a major stressor. Just keep in mind that signing up for a freelance gig may allow you to work from home and still manage your other responsibilities. Getting out of debt should be considered a stress relief, and, if the thought of getting an additional job creates anxiety, consider one of the many other options available. 

 

8. Bankruptcy

 

Bankruptcy should always be the last resort. The two major types for individuals and those who own a small business. 

Chapter 7: allow you to liquidate remaining assets to close your credit accounts in a short amount of time. 

Chapter 13: set up a reduced repayment plan with your creditors over a longer period of time.

If you do end up in this situation a credit relief expert can help. They will determine which category best suits your situation. Furthermore, they will go to court to either liquidate or reorganize your debts. This way, you no longer have to deal with credit lenders directly.

Best for: People who have no other debt relief options. You will likely lose some valuable assets to help pay off lenders. However, you will not lose personal belongs or your job in the process. Many of those who file for bankruptcy see it as a refreshing way to start over financially.

Things to consider: Taxes, students loans, child support, alimony, and government debts are not included. Depending on the circumstances, you can lose your car, home, and investments. Bankruptcy also damages your credit for 10 years, and there are hundreds of dollars of fees associated.

 

9. Give Yourself a Break

 

You are not alone. Many people just like you are in the exact same scenario. Take a breath, and know that there are resources out there for you. Search for a community to help build you up.

Best for: Everyone.

Things to Consider: You are not alone.

 

How To Get Out Of Debt Recap

 

The following is a summary of the 9 Proven Solutions On How To Get Out Of Debt Fast:

 

1. Lower Your Rates

 

Best For:

Those who are just trying to get ahead of the debt game and are not completely drowning in debt.

Things to consider:
Even if you have a perfect credit score, one company may say yes and another may say no.

 

2. Debt Consolidation

 

Best for:
People whose total debt is less than 50 percent of their income and who have good credit.
Things to consider:
Debt consolidation is only a good choice if you are not planning to open any new credit accounts until you get out of debt.

 

3. Debt Settlement

 

Best for:
People who only have one or two high-interest accounts they have not been able to pay off.
Things to consider:
There is no guarantee your lender will accept the negotiation. If they do, your credit score will go down because you are not paying the total debt in full.

 

4. Debt Management Plan (DMP)

 

Best for:
Those who are in debt but can effectively manage it with a little better planning.
Things to consider:
It is crucial to use a DMP company that has a proven track record of helping consumers.

 

5. Frugal Living

 

Best for:
People who are may not be in severe debt but need to focus on spending less.
Things to consider:
Those who are in hundreds of thousands of dollars of debt should not automatically resort to this option alone. It should be combined with other debt reduction solutions.

 

6. Student Loan Forgiveness

 

Best for:
Those with large student loans.
Things to consider:
Those who work in professions that actively give back to the community, and individuals usually only qualify after a certain amount of time.

 

7. Consider Additional Income

 

Best for:
Those who are not already overwhelmed and stretched thin in their professional and home lives. The income earned from working part-time or selling items should be used solely for paying off debts in order for this method to work.
Things to consider:
If you have a large family or numerous obligations, getting a part-time job or freelancing can be a major stressor.

 

8. Bankruptcy

 

Best for:
People who have no other debt relief options.
Things to consider:
Taxes, students loans, child support, alimony, and government debts are not included.

 

9. Give Yourself a Break

 

Best for:
Everyone.
Things to Consider:
You are not alone.

 

This post was contributed by Katie McDaniel. She writes about the latest developments in HR, business communication, recruiting, and CRM solutions for Liberty Debt Relief.

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Thomas Minter
Thomas Minter
thomas@millennialmoney.com

In just under three years, Thomas eliminated $80,000 student loan debt by house hacking and saving 50% of his income. He works for a large engineering firm, lives in the Bay Area and is addicted to Personal Capital

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