Being in debt is no joke. Fortunately for you, there are several debt solutions that are available to help you achieve debt freedom. What you have to understand is that finding the best debt relief program is an integral part of getting out of debt. If you chose the wrong program, it could end up hurting your credit score, losing you money and making the whole debt seem worse.
So when you are trying to find a solution for your problem, you may want to ensure that it is the smart choice. There are qualifications that you can look into that will help you identify the best program that will get you debt free. But before we can look into that, let us discuss the wrong ways that you can find debt relief.
5 ways to deal with debt that is just plain dumb
Let’s be blunt about it – there are really dumb ways to try to get debt freedom. You don’t want to use them for the simple reason that you have better options. For the sake of knowing what you should avoid, here are the 5 not so smart debt solutions.
Getting debt help from professionals that ask for high upfront fees. First and foremost, no debt relief company should ask for high upfront fees. That is in direct violation of the Telemarketing Sales Rule or TSR. If you read the details of this law in the Federal Trade Commission (Business.FTC.gov), you will find that it is one of the first prohibitions of the law. No legitimate debt relief company will ask this from you. So if you happened to find a professional that is asking you to pay an upfront fee, there is something fishy about them. You need to run away fast! Otherwise, they will just get your money and they will do the running – far away from you.
Paying only the minimum of your debts. This is actually what your creditors will hope you do – pay only the minimum of your credit balance. You know why? Because it will keep you in debt for a very long time and you will end up paying an interest amount that could be higher than what you purchased. Do not fall for the minimum payment trap.
Getting one high interest loan to pay for the multiple low interest loans that you currently have. There are debt solutions that will require you to get a loan but this is just plain wrong. The only good thing that you will get out of this is the one payment that you will make every month. But in terms of savings – you will not get any. You will be paying a high interest amount on your loan and there is nothing smart about that at all. If you think about it, you could be better off just leaving your multiple debts as is. If you want to use a loan, make sure it is a low interest loan.
Asking family and friends for help. We all want to be there for family and friends when they need us the most and you are sure to expect the same from them when you need it. But this does not extend to your debt. Relying on them to help you with your debt solutions will endanger your relationship with them. Family loans are tricky to get into. You could be ruining a perfectly good relationship if you are not careful. And you could be dividing the family when people start taking sides. You don’t want that to happen.
Filing for bankruptcy. The last item on our list is actually not too dumb – at least if you know how to use it properly. There are instances wherein bankruptcy is the best way to get out of debt but do not be too quick to come to that conclusion. Only when you have very little or no income coming in and you do not own any asset, that is the only time that bankruptcy could make sense. This debt solution will ruin your credit score significantly and you do not want to do that unless you really have. Bankruptcy is not really taboo but the consequences are just too great that financial experts advise people to seek this out only as a last resort.
How to be smart when choosing a debt relief program
In truth, you have a lot of options apart from the ones mentioned above. The key to be smart about debt solutions is to simply know what your choices are. Also, you have to consider two important factors about yourself.
How much can you afford to pay?
The first is to determine how much you can afford to pay. To do this, you need to create a budget plan. By identifying your income and the expenses that you spend on, you can see how much money is left for your debt payments. If you can pay the whole balance of your debts, that means you can use debt consolidation. That could either be debt consolidation loan or debt management. If your income is not enough, you may need a debt reduction, then debt settlement is probably better than merely consolidating your debts.
What are you willing to sacrifice?
The next issue that you should have when choosing among debt solutions is to ask what are you willing to sacrifice. If you want to get out of debt fast, debt settlement may be the better option because the debt reduction will allow you to pay only a portion of your debts. However, that would mean sacrificing your credit score. If you cannot sacrifice your credit rating, then you need to look at your budget to identify the expenses that you can remove to help you increase your debt payments. That way, instead of settling with debt settlement, you can opt for debt consolidation. The latter can help protect your score, but it will take a bit longer to complete.