Thursday, September 6, 2007
Getting Out of Debt Safely
What is debt?
Debt is money that you have borrowed and still owe for goods and services you have purchased. You don't have to
go on a wild spending spree to create a debt crisis. Debt can arise from emergency situations outside of one's control
but more often, a consistent pattern of spending even just a little more than you make, over time, can lead to an
unsafe or unmanageable amount of debt. The key to gaining control of your debt is to first identify what is good debt
and what is bad debt, and then pay off the bad debt.
Good debt vs. bad debt:
• Good debt is debt you have on items you need but can't afford to pay for up front without using all of your
cash reserves or liquidating your investments. It is debt that can be seen as an investment and can help you
build your credit rating if paid on time, such as a mortgage, car payments or student loans.
• Bad debt is debt you've taken on for things you don't really need and can't afford. The worst form of bad
debt, of course, is credit card debt, since it carries the highest interest rates.
What can be done once debt becomes unmanageable?
• Do not continue to borrow if you can't make monthly payments towards the debt. Reserve your credit
cards for emergencies. Try not to add to your debt load by making additional or unnecessary purchases.
• Do not use your credit card to borrow cash.
• Create a budget for income, and a debt payment plan. Do not spend more than you earn.
• Use your debit card, not your credit card, to make purchases.
• Pay more than the minimum amount due on your credit card(s) every month.
• Talk to an authorized account representative at your credit card company as soon as possible about
lowering your interest rate and, if possible, arranging a payment schedule.
• As soon as a credit card account is completely paid off destroy the card and close the account.
• If all else fails, consider using the services of a licensed credit counseling company that might be able to help
you pay off your debt.
What is a credit counseling service?
• Credit counseling services, also known as debt management or budget planning services, help consumers
pay off unmanageable debt. These companies can contact creditors to help arrange lower fees and interest
rates (sometimes with better results than a consumer could normally negotiate) and can create a reasonable
debt consolidation and/or repayment plan.
Who benefits from credit counseling?
• Anyone who is behind on bill payments to creditors can consider using a New York State licensed credit
counseling service.
• Anyone who is considering bankruptcy may also benefit from credit counseling. Declaring bankruptcy is
usually the last resort anyone should take to solve financial problems. A bankruptcy petition can stay on
your credit report for up to 10 years.
Roberto is the owner of Consolidation Credit Debt. You can find more information at http://consolidation-credit-debt.com
Is bankruptcy still a easy option?
Is Bankruptcy still a easy option?
It wasn't to long ago that someone who was deeply in debt would just say "thats ok I will just go bankrupt".
Many people looked on bankruptcy as part of life, and there are many people who have been bankrupt 3 or 4 times. Every time a person goes through bankruptcy they are leaving behind thousands of dollars of money that can never be collected by the companies they owe the money to.
Historically the usual cause of bankruptcy has been medical costs and after that Credit card debt has been the leading debt in the majority of bankruptcy cases.
Medical costs in the USA can become enormous, totally unmanageable and the stress of it all drives many people to throw their hands up and accept bankruptcy as the only way out of it.
This is one of the most acceptable reasons for bankruptcy.
Up until recently credit card debt was just as easy to escape from. Bought to many gadgets, spent to much on clothes run up 20 credit cards with thousands of dollars of debt on each credit card? Just go bankrupt wait two years and start all over again.
Bankruptcy is no longer as easy as it was, the bankruptcy laws changed dramatically in 2005. It is no longer as easy to walk away from your debt as it was previously, if the bankruptcy court feel that you can pay the debt back they will make you do just that.
Before you go and apply for another store card, or a new credit card to add to your collection, think about whether you can really afford it and remember that bankruptcy is not a easy option anymore.
The debt you accumulate now will be with you for a long long time, and the dollar you spend on that new pair of shoes now will cost you two dollars by the time you have finally cleared the debt from your credit cards.
Paul owns Bankruptcy Assitance, Bankruptcy doesn't have to be stressful.
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