Bankruptcy and Debt

SWIMMING IN RED INK: HOW TO GET DEBT RELIEF

SWIMMING IN RED INK: HOW TO GET DEBT RELIEF

It seems like the onslaught never ends. No, we’re not talking about another edition of Dr. Phil; we’re talking about the seemingly endless number of bills that pile up on your kitchen counter. Many Americans swim in so much red ink that filing for bankruptcy has emerged as a viable debt reduction solution.

However, you can find debt relief, without resorting to the ultimate financial “nuclear option.”

4 Fundamental Steps to Take for Debt Relief

You’ve seen the quick fix debt relief schemes presented during infomercials. You know, the programs that promise immediate relief that prevents your creditors knocking on the front door. You don’t need to fork over money you don’t have to pay off debt. You follow four simple to implement steps to start down the road of debt relief.

Step 1: Review Your Outstanding Debt

According to the Federal Reserve, Americans have accumulated almost $1 trillion in revolving debt. This means the average American is burden with more than $4000 in revolving debt, most of which derives from credit card use. Before you begin to whittle away at the debt mountain, you have to discover the sources of your debt by itemizing each creditor that you owe money. Organize all of your financial statements, as well as request the free credit reports provided by the three major credit reporting bureaus.

Create a Monthly Budget

After examining the scope of your debt, devise a monthly budget that you can follow. Like setting New Years resolutions, creating a monthly budget doesn’t help you control spending, if the budget is not set realistically. Start by writing down what you take home after taxes. Then, prioritize your spending, with placing mortgage and automobile payments above subscribing to another movie and television downloading service. Other essential monthly expenditures include utilities, groceries, childcare, insurance, and student loan payments. Finally, add discretionary spending, such as dining out and buying clothes. After you subtract expenses from income, determine whether you need to cut back in some of the discretionary spending areas, such as travel and entertainment.

Develop an Achievable Plan

With your monthly income after taxes as the foundation of your debt relief plan, subtract your monthly expenses and minimum debt payments. Any money leftover should not be used for impulsive purchases. Instead, use any money remaining on your budget to increase debt payments. Start by reducing the debt that has the highest interest rates. This typically means targeting credit cards. In addition, focus on the debt that carries the highest balances. Follow the fundamentally sound plan each month by removing one debt source at a time from your burdensome personal balance sheet.

Negotiate with Creditors

After you complete your debt relief plan, contact your creditors to see if they are willing to improve the terms of your loans and credit lines. Some of your creditors may lower interest rates to alleviate the financial burden of paying off debt. Consider negotiating settlements on some of your debt by speaking with credit experts that work in customer service departments. Let’s say you owe a creditor $1,000 and offer to pay $500 today, if the creditor absolves you of the responsibility of paying the remaining debt. Some creditors accept negotiated settlements because the payment of some debt is better than the non-payment of an entire debt load. Moving a high interest rate credit card balance to a credit card that offers an introductory 0% rate for 6 to 12 months also alleviates your debt burden.

You cannot wave a magic wand and expect to enjoy debt relief. The process of reducing your debt burden takes time and most important, it takes discipline.

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