8 Ways to Get out of Debt
1) Use your Assets
If you have assets with some significant equity, such as a home or a car you may be able to use these to get control of your debt. For example, you could get a loan on your home sufficient to pay off your debts. You could be saving a considerable amount of money on interest if you pay off high interest credit card debt in return for lower cost debt.
If you have a car, consider selling it, paying off your debts and buying a cheaper car. Be careful though! You don't want a "cheaper" car that will cost you a fortune in repair costs.
2) Get a Second Job
Use the money from this job to only pay off your debts. List your debts noting the interest rates. Pay off the debts with the highest rates first and work your way down the list.
3) Put your Credit Cards on Hold
One of the best steps you can take to get out of debt is to immediately stop using credit cards. At the very least destroy all your cards keeping just one card for emergencies.
4) Set up a Repayment Plan
Cut back on your expenses and/or use freed up cash to pay down your debts. Pay off the debts with the highest rates first and work your way down the list.
5) Get a Consolidation Loan
A consolidation loan can make lots of sense. Get a loan to pay off all your many debts and have just one payment to make. The new loan usually has a smaller payment and a lower interest rate.
6) Use the Services of a Credit Counselor
There are two types of credit counselor, for profit and "nonprofit". We do not distinguish between the two as they provide similar services and both charge a fee. Credit counselors can assist you in acquiring the discipline you need to get control of your debt. Be careful! Many people do not fully understand all the ramifications involved such as:
7) Informal Proposal - Payments over time.
In some cases you can make a proposal to your creditors to set up a payment plan that will allow you to pay your creditors in an orderly way and thus help preserve your credit rating. This operates similar to a debt consolidation loan except you do not borrow the money to pay off your creditors.
8) Informal Proposal - Lump sum payment.
You may be able to pay less than 100 cents on the dollar. For example, a relative may be willing to pay a lump sum to the creditor of say 50% of the amount owed in order for the balance of the debt to be written off. Your creditors will be more willing to accept this offer rather than have you file Chapter 7. This works best when there are few creditors.
Research by Ronnie Brooks and Cleo Hayes,
University of Memphis