5 Dealing with Debt

People have become more and more dependent on credit cards, and because of this the number of people who are deeply in debt has risen sharply. People with large amounts of debt struggle to make ends meet and frequently live paycheck to paycheck. Additionally, if someone owes large amounts of money, they will have problems saving for their future or emergencies. Therefore, it is important that people take control of their money and work their way out of debt. Some of the best ways to eliminate debt include creating a budget, using cash when possible, negotiating with creditors and debt consolidation.

Create A Budget

The first step in any debt reduction process is to create a budget. Many people do not actually know where their money is going every month. Creating a budget allows people to see how much their expenditures actually are and assign limits to spending on things like entertainment, clothing and dining out. Keeping a budget can also help eliminate overdrafts and late payments.

Stop Using Credit Cards and Start Using Cash

Obviously, to get out of debt people need to stop using credit cards. However, studies have shown that even when people use their debt card,
they do not fully register that they are spending money. People spend 12 to 18 percent less on average when they pay with cash. While using plastic to pay bills is not a problem, it is often helpful to use cash for recreational spending.

Negotiate With Creditors

People can call their creditors and attempt to negotiate at any time, and they do not have to go through a credit counselor to do so. Credit card companies are able to reduce interest rates, remove fees and make settlements over the phone. It is important to note that many credit card companies are reluctant to negotiate; however, it is in their best interest to do so because if someone files for bankruptcy or they sell someone's debt to a collection agency, they end up with next to nothing.

Consolidate Debt

Many people have several credit cards that carry high interest rates. One way that people can reduce their debt and speed up the process of paying it off is to put all of their debt into one low interest rate account. There are a number of cards that offer free transfers with low interest rates. Additionally, if someone still has a good credit rating, they may be eligible for an unsecured loan. These allow people to have only one monthly payment and lower their interest rate.

Home Refinance / Home Equity Loans

In addition to unsecured loans, some people are able to refinance their homes and end up receiving cash at the end of the refinance due to equity built up in their homes. This cash is often sufficient to pay off the majority of credit card debt. If refinancing is not possible, people can also look into home equity loans, which generally have much lower interest rates associated with them than unsecured loans.