Destroying Your Debt! … by neil smith

3/23/09

It’s been a long time since I have been burdened with revolving debt except for my mortgage, but that’s an animal of a different nature as you can deal shrewdly to make your home purchase an equitable investment. There’s almost nothing you can buy with a credit card that will increase in value at all, let alone enough to warrant the interest you will pay over the life of the debt.

It is true that used properly, a credit card is a great tool offering a convenient way to purchase goods and services while offering some great consumer protections and even cash back rewards and frequent flyer miles among other incentives.

It’s when you don’t have the actual “cash dollars” onhand to pay the debt off when the bill comes that causes the problems and unfortunately there are so many people lacking the self control to live within their means and there have been so many predatory lenders out there who are more than willing to take an obscene advantage, that a true crisis has taken hold with reverberations that have moved through our stock markets, housing markets and have made qualification requirements much more stringent for responsible borrowers than it should be, which is a horrible shame.

So how does a person who has dug themself into a “ditch of debt” turn things around?

First thing’s first. You really have to change your habits and realize what your true financial limits are. Know what you make. Know exactly what your monthly bills are including housing, food, transportation, minimum monthly payments on your debt and any other expenses that cannot be avoided.

If your monthly bills are equal to or more than your income, you have some very serious decisions to make. You either have to downsize your style of living, start making more money or both. There is the option of bankruptcy, but this should only be used as a last resort when all other options are exhausted.

Now let’s go over some…
DEBT ELIMINATION METHODS

First Resort: (no damage to your credit rating)

* Sell items you don’t need
* Work an extra part-time job
* Brown bag your lunches and make meals at home
* Pay down your highest interest rate debts first

Second Resort: (could cause some minor damage to your credit rating)

* Call your creditors and try to negotiate lower interest rates, better terms and a payment plan.

* Consult a credit counselor

Third Resort: (will definitely affect your credit rating)

* Hire a debt negotiation company (click to see my article on Debt Negotiation here)

This requires signing a power of attorney so that a professional 3rd party can negotiate with creditors on your behalf. This requires that you stop sending payments to your creditors to force them into a position of negotiation. This absolutely wreaks havoc on your credit rating, but can be an effective way to avoid bankruptcy for many.

Last Resort: (scorched earth solution)

* Declare bankruptcy

Not everyone can declare bankruptcy. You can’t declare just because you don’t feel like paying your bills. You must prove that you are absolutely incapable of paying them and usually cannot be holding any recently acquired debt (so you can’t just go on a spending spree and then turn around and declare “whoopsie!”). Requirements for declaring bankruptcy have become more stringent in recent years. I will address the finer points of declaring bankruptcy in an upcoming article so please stay tuned!

Final Thoughts To Consider

Whatever your level of debt and how dire your circumstances, there are ways out but no magic bullets. The key is realizing that ignorance is not bliss when it comes to your finances and eventually, the piper will always be paid one way or another. It may be tough at first, but if you can get into a positive cash flow pattern, even if it’s just a small amount at first, and diligently drive down your debts, the momentum will build and you will be able to refocus your attention on methods to build wealth instead of spending all your energy trying to Destroy Your Debt!

Please visit my website at http://www.letsgetahead.com for more great articles like this one!

tags: debt elimination, destroy debt, destroying debt, debt reduction, neil smith, neal smith, let's get ahead, letsgetahead, finance, personal finance

excerpt: There’s almost nothing you can buy with a credit card that will increase in value at all, let alone enough to warrant the interest you will pay over the life of the debt.