Debt Reduction Strategies

It is so easy to get into debt! Credit card companies supply the American consumer with countless offers of credit. We are offered 90 Days Same as Cash, an unattainable 0% interest and No Money Down. Paying with credit is easy, just swipe your card or wave your magic keychain. All of these are ploys make it easy for us to build up debt, usually with one major negative net effect: Interest!

As debt accumulates, the interest the American consumer is paying for that debt skyrockets. Bills can become so cumbersome that one becomes buried in their debt, searching for a solution. But what is the best debt reduction strategy for you? Should you seek professional counseling, or is bankruptcy the only option left.

There are several debt reduction strategies that you can consider when facing accumulating debt. First and foremost: Stop borrowing money! You will never dig your way out of debt by accumulating more debt. Once you change your debt grabbing habits, you can focus on one of these strategies to help you reduce or eliminate your debt.

Ask a friend or relative to help: For some people, they may have a generous friend or relative who can help them pay down the debt they have accumulated. However, this strategy can be dangerous to your relationship with that person. Borrowing money from someone you are close to can damage your relationship with that person. Many people have found that Thanksgiving Dinner just doesn't taste the same if you owe a debt to the person sitting across the table from you. Be careful if choosing this option! A slightly better option (because it doesn't violate the first rule about not borrowing more money) would be if someone was able to give you money to pay off your debt. Be wary, though, as this can still strain a relationship.

Debt Reduction Strategies

Credit Counseling: There are many credit counseling companies, including some not for profit companies. Credit counseling can be a very good strategy to attack your debt, but be careful when choosing a company. Ask questions, compare fees, find a company that can help you successfully reduce your debt.

Debt Snowball: Many Americans have used this option to get out of debt. It involves taking any available money you have and aggressively attacking your smallest debt until it is paid off. Next, you take the money you were paying towards your smallest debt, plus any additional money you can manage and attack your second smallest debt. Once it is paid off, you take all the money you were paying towards your smallest two debts, plus any additional money you can muster . . . I think you get the picture. This method does have its drawbacks, though. It requires that you first set aside some money for emergencies. It also requires some pretty strong commitment and sacrifice. However, it can be a very successful way to get out of debt.

Debt Settlement: Debt settlement is negotiating a lower payoff with the company you owe money to. If you have already missed numerous payments, a company may be willing to settle for less money than you owe them. There are companies that help you reach debt settlements, but you have to shop around before choosing a company. Some companies will counsel you to stop paying for an even longer time, to make the company you owe more willing to settle. This strategy can further damage your credit score. Some companies will also charge extremely high fees, so you may not end up saving money at all.

Debt Consolidation Loan: Homeowners can consider a debt consolidation loan. You can borrow against the equity you have in your house to pay off your other debts. There are some things to consider carefully when thinking of going down this road. First of all, if you cannot make the payments on this loan, you could lose your house. Second, a debt consolidation loan takes multiple loans and combines them into one loan at one interest rate. Be careful not to include any low interest loans you already have in your debt consolidation. It would not be useful to take a loan you have at 2% and combine it into a loan at 4%.

Bankruptcy: Just the thought of Bankruptcy will send a chill up ones spine. Usually reserved as the final alternative, bankruptcy involves having debts written off because you are unable to pay them. In October 2005, new laws went into effect that made it more difficult to file for bankruptcy. It is important that you find quality counsel, such as a bankruptcy attorney, before taking this path.

Getting out of debt is much harder than getting into debt. Which of these debt reduction strategies will work for you? Before you choose any one option, ask questions, lots of questions. Be sure you understand the process you are committing to, as well as what fees you will be responsible for. Don't sign anything until you fully understand it and make sure you get everything in writing! If you are not careful in choosing a company to work with, you can end up in a worse situation than the one you are in now. On the flip side, however, committing to one of these debt reduction strategies, choosing a quality company or good friends to help you and having the fortitude to follow through with your decision can relieve you of a huge stress on your wallet, and your life.