Thursday, July 15, 2010

What Is the Quickest Way to Get Out of Debt?

Being in debt can be a very stressful and worrying situation. Whether you owe one creditor or several, getting your bank account back in the black can seem like an uphill battle.
The first step in getting out of debt is to face reality. It might sound obvious, but you'd be surprised at the number of people who deal with debt by sweeping it under the carpet and denying they're in trouble. You may find it hard to confide in friends and family for risk that you might lose their respect, or even lose them altogether. If you really want to get out of debt, you'll need to come 
clean.

If you're not entirely sure how much you owe, sit down and go through all of your bills and make a list. Compare the figure against your monthly incomings and outgoings, and work out how much you can afford to repay each month. You may wish to consider making a few sacrifices here and there (e.g., cable TV or mobile phone) to free up some extra cash. Now let's take a look at some of the options available for repaying the money that you owe:
1. Start paying more than the minimum on your monthly credit card statement. Remember that the longer you take to repay the balance, the more interest you will get charged in the long-term, so pay as much as you can afford each month. Also, if you own more than one credit card, consider transferring the balance (if you are still within your credit limit) of the one with the highest interest rate to the one with the lowest.
2. Raid your piggy bank: If you have savings stashed away, it would be sensible to use them to clear your debts.
3. Approach family members and trusted friends to see if they are willing to float you a loan. Make a written agreement to establish when repayments will be made and how much interest will be charged. As long as you stick to your side of the bargain, chances are you will receive a very preferable interest rate, and your relationship will remain amicable.
4. If you have no savings, credit card or other methods of freeing up some cash, you could consider bank loans or payday loans. A payday loan is designed to tide you over until you receive your next paycheck. For a short-term solution, they can be very handy, but if you can't afford to repay in full at the end of the month, payday loans can work out to be very expensive. Therefore, always make sure you can pay the money back in full on the agreed date.
5. Once you've covered all the above possible options, contact your creditors to see if they are willing to renegotiate the terms of repayment. The majority of creditors can be quite understanding if you are at risk of going bankrupt, so ask for a new repayment schedule with a lower interest rate.
6. As a last resort you could consider filing for bankruptcy, which allows the discharge of the majority of debts. However, remember that doing so will mean that this will be noted on your credit record for ten years, which may result in your struggling to obtain credit during that time.

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