Determine your fiscal situation

The initial step to eliminate debt is to know where you stand and how indebted you are to your creditors. To find that out, gather all your financial statements and see how much debt you owe to your creditors. According to Michael McAuliffe, president of Family Credit Counseling Service, most of the individuals are afraid to take this step, but this is extremely important when paying off the debt. Now once you know your fiscal position, think about some necessary strategies to eliminate the debt.

Repayment plan

Now that you know where you stand, it’s time to make some repayment plans. There are two most effective ways to repay your debt, such as debt snowball and debt avalanche. Debt snowball is a debt repayment strategy that allows you to pay off the smallest balances first while paying minimum on the larger debts. And once the smallest debt is paid off, you may proceed to the next slightly larger small debt above that. On the other hand, debt avalanche is a method that allows you to pay off the highest interest debt first while paying minimum on the smallest interest debt. Either method is effective, depending on your unique financial predicament.

Keep some cash aside

Saving is a crucial aspect of a sound debt elimination strategy. If you have four to six months household expenses saved, you are a king. But if that’s not possible, set up an emergency fund which you can use during an emergency. It is most common to see that people use all their income towards paying off the debt and when an emergency comes they use credit again, which leads them falling further into debt. To avoid such situation, keep some cash aside after meeting daily expenses.

Pay more than minimum

Making only minimum monthly payment can hardly pay down your debt, so it is always advisable to pay more than minimum in order to pay down your debt fast. But if you cannot afford to do so, sit down and evaluate where you can save some more money. Analyze where you are spending more and try to cut down on it. Curtail all your unnecessary or luxurious expenses, such eating outside, going to movie theatre, and cable or satellite connection.

Deal with creditors to improve terms

Contact your creditors and request to waive off the fees, reduce interest rates, or extend the loan terms. You may find some creditors reluctant to do so, while others enthusiast in accepting it. Your chances of successfully negotiating with creditors increase if you contact the creditors at right time and deal with them professionally. You may also negotiate with creditors to reduce the pay-off amount so that it becomes even easier to pay off the debt.

In conclusion, bear the above mentioned debt elimination strategies in mind when paying off the debt and achieving debt relief.

ARE BORROWERS REALLY SLAVES?

Proverbs 22:7 (the NIV version) says “The rich rule over the poor, and the borrower is servant to the lender.” Now, David didn’t literally mean that you were a slave if you owed someone money… but in his time, just like today, owing other people money means they have a serious stake in your destiny and your financial future.

At the same time, you don’t need to be ashamed about debt. You don’t need to feel bad about getting into debt because the Bible acknowledges that it’s something that can happen to all of us, especially if we aren’t well off.

Take a look at the book of Deuteronomy, which told lenders not to place an undue burden on the poor, or the law passed down in Exodus 22:26: “If you do take the garment of your neighbor in pledge, you must return it to him by the time the sun goes down.” It was really cold in the desert, and no matter how bad things got for a debtor – even if they had to literally give up their shirt as collateral on a debt – lenders weren’t allowed to take advantage of the impoverished or let them suffer.

How Important Is Debt Repayment?

The Lord looks out for his people, even those who are suffering financially. But The Bible doesn’t throw around the word “wicked” haphazardly. Yet that very word is used to describe people who cheat on their debt in Psalms 37:21. You need to commit yourself to paying creditor off when you’re back on your feet, and doing it as soon as reasonably possible.

Now, this doesn’t mean you need to overhaul your lifestyle and live out of a studio apartment and eat noodles until the end of the decade. But you should look for signs of excess in your life and life humbly. The Book of Timothy says the love of money is the root of all things evil. Ask yourself whether your financial choices have been driven by a desire to meet your needs, or a love for extravagance. Don’t beat yourself up, or focus too much on the past, but reconnect with Christ in a humble way and prepare to make changes.

WHERE SHOULD YOU START?

There are so many great firms that focus on resolving your debt and also provide Christian counseling, and I’d feel a little bit remiss trying to catalogue them all – it’s too wide a scope for one article, and even one website! Check out Family Life Credit and Turning Point Ministries – these are two examples of websites that put their commitment to Christ’s principles front and center. While there’s nothing wrong with secular based debt consolidation, it’s a real comfort to work with an explicitly Christian group that “speaks the language”, so to speak.

Get Past The Gatekeeper

Contact them as soon as you realise that there’s a problem. Unfortunately, debtors are often reluctant to reach a settlement if you have missed only one or no payments. Still, it is worth trying. It’s important to do your contact via telephone. Chances are, they won’t respond to a written letter – those things go right to the circular file. Next, you need to gear your self up to talk to the right person. Customer service representatives will rarely have the authority to make such deals, even if they’re reluctant to admit it. Ask for the person who handles settlements or workout arrangements. Different companies have different job departments, so here are a few “magic words” to run past the customer services:


• Loss mitigation
• In-house help program
• Workout program

Making Contact

As soon as you reach the appropriate person, get and note their Full name, ID number (if they have one), and their telephone number – with the extension. Be upfront. Go light on the sob stories, it’s nothing personal, but they’ve heard plenty of sad stories, and most of them are sadder than yours. You’ll actually get a better reaction if you respect their time and stick to the facts. Explain to them that you want to pay off the debt, and exactly the circumstances that you would need for that to happen. How much will you be able to pay? How often? For how long?

Following Up

Once you hang up, write down a brief summary of the conversation. File this with any correspondence that you receive from the company. You will need to contact your creditors, repeatedly, and at different stages of the process.
After a certain period of time, usually 2-3 months, your case will be referred to a team within the company who specifically deal with coming to such arrangements. This is the time period in which you would be most likely to be able to reach a settlement.

After 180 days, the company removes unpaid debt from its books – a “charge-off”. This is what you most need to avoid. At this point, they may pursue legal action or attempt to sell your debt at a loss. You don’t want this to happen, but the good news is, neither do they! That’s why it’s so important to talk things out. Following your initial contact, your credit company will usually freeze your credit limit, unless you’re “maxed out”, which will negatively impact upon your credit rating.

Hammering Things Out

Make sure you know exactly how the debt will be reported, as this will ultimately be what determines your credit rating. Remember that there can be consequences in terms of tax. Once your debt is rolled back, you still may be charged through income tax, over a period of time, for what you have failed to pay back.

Make sure to have everything written down in a contract before you agree to the settlement, or to any part of it. Unfortunately, a verbal agreement doesn’t always hold water, as the person who made it with you may have switched jobs before the settlement can be completed. Everything. In. Writing.

Follow those details, and you can make credit card debt a thing of the past!

LUMP-SUM SETTLEMENT

If you have access to a large chunk of cash, but not one that would otherwise clear you of your debt, your debtor may consider a lump-sum settlement. All this entails is handing over the money you do have in exchange for your debtors clearing your debt.

You can usually divide the payment up into three smaller chunks. Just make sure that the money that you will be paying for the lump-sum agreement is the total amount that you will have to pay in order for your debt to be cleared, and remember that a lump-sum settlement has a significant impact on your credit rating.

WORKOUT ARRANGEMENT

Depending on your level of debt, and its relation to your income, this may be a credit-friendly way to help pay off your debt. It usually involves a reduced interest rate and/or the elimination of punitive fees, such as late fees and over-limit fees. The workout arrangement may be either temporary – providing enough time for you to get back on your feet – or permanent – until the entire debt owed is paid.

Your credit line to the company will be cut, so you will not be able to use the card anymore. This will hurt your score a bit. The credit line will always be cut, unless you have already maxed your card. But the company may also forgive past punitive fees, further reducing your debt, if you ask them to. How will this impact your credit score? It depends.

Each company reports the arrangement to the credit bureaus in their own way. If the company reports that you’re making full, on-time payments, your credit score will benefit! Just ask around.

FORBEARANCE PROGRAM

This simply entails a brief period of time, weeks or months, in which you do not pay. The intention is to allow you to get back on your… well, get back on your bearings financially speaking, so that you will be able to pay off the debt more efficiently in the future.

There isn’t really a forgiveness of debt, here. You must still pay back everything you owe eventually over time. The positive side of this arrangement is that it’s not going to roll over your credit score. This is an ideal solution if you feel like you caught the “debt spiral” pretty early and you feel like you could get things paid off if it wasn’t for the interest. Now, keep in mind that there may be a charge from the creditor, if they decide to take part in this program. Make sure that you know exactly what extra you will be paying, if anything, before signing anything.

Now, a lot of people get into these groups blindly – seeing them as a quick solution to their debt problems – and get tripped up by the red tape that can sometimes come with debt management. But read this, and you’ll get past all the pitfalls and pay off credit card debt for good.

Who To Hire

It is seriously recommended that you hire someone from a company that is affiliated with either the National Foundation for Credit Counselling or the Association of Independent Consumer Credit Counselling agencies. These organizations have set criteria which must be met, on a consistent basis, in order for them to remain a part of the larger organization. So, in essence, being a part of one of these groups is a mark of approval from their peers and from other expertise in the financial industry.

The counselor from the debt management consulting company will meet with you to discuss your options with you before they contact any of your creditors. The consensus amongst industry experts is that these professionals are very honest, so they will provide you with possibly your best chance of overcoming your debt.

In terms of your credit rating, the act of taking part in a debt management program won’t hurt your rating. However, the debt management company will close down all of the accounts which involve debt, and this will impact negatively upon your credit rating, as you will be reducing your “debt utilization ratio”, which is an essential component of calculating credit.

What To Avoid

Steer clear of for-profit debt management companies. A good way to determine whether or not they are for-profit or not is taking note of whether they ask for money before they have achieved a settlement for you. If they do this, they are for-profit and your interests will be compromised.

The typical cost of a legitimate company that is accredited by one of the two agencies that I described above is a $30 start-up fee and a $15 monthly charge. If the organization charges you something nominal like that, they’re on the level. Also, most of these companies won’t turn you away if you cannot pay this rate, so just ask!

Since the recession of 2008-2010, credit card issuers have become more generous in regard to debt management plans. Don’t get lost in the shuffle – get on the phone and start slashing your debt today.

Your creditors don’t like losing money (which is why they pay a fleet of drones to leave annoying messages on your telephone at all hours of the day), and you don’t like having less financial freedom and more headaches.

Are you being faced with this kind of situation? When the debt is piling up and there’s no hope of getting out, you may feel as if bankruptcy is your only option. Don’t. Before you go down that road, it’s best to consider whether there are any other options that may be more suitable for your situation.

One of the main problems with bankruptcy are the crippling economic sanctions that are put on you once you have taken that action. Depending on the state or federal law that governs you, these sanctions may include not being able to borrow money or start a business for years into the future. And worst of all, even whenit’s all been said and done and you’ve crawled out of the hole, it may still be impossible to borrow money, due to the devastating impact that bankruptcy has on your credit rating. It’s like a scarlet letter, and nobody wants to wear it.

The good news is, you may not have to go down this road. Smart preparation is a lifesaver during these times. Set a roadmap for clearing your debt, identify exactly what your situation is, and you’ll have cleared a hurdle that most people don’t even think of.

How Much, How Soon?

Picture yourself in a interest-free financial situation. Picture how much you own and your current income level. You need to figure out exactly what you are able to pay back. In other words, over a set period of time (week, month, year, etc.), how much money will you certainly be able to repay?

When assessing this, remember that you need to prioritise the essentials. Everyone is tempted to go overboard with austerity when their debt piles up. But the truth is, being deep in debt doesn’t mean that you need to treat yourself as sub-human, or even that you should. When you budget, allow enough money to eat well, to travel for work and pay your mortgage, for example, before you get down to your budget for repaying your other debt.

Where Is The Wiggle Room?

Most financial experts will tell you that one of the main reasons that people get into trouble, or into more trouble, with their finances, is because they don’t prepare or budget for the unexpected. There are a myriad of reasons why you may need to pay out for something, unexpectedly. Think through each of these; then think about how many of these “unlikely” events may take place; and allow some room for them in your budgeting.

Think About Your Debt

You also need to know about the exact nature of the debt you’re in. How much of the debt have you actually borrowed? And, how much of your debt is from interest, over-limit charges and so on? Ask your lender. Many people are shocked to learn exactly how much of it fits into the latter category. Categorising your debt in this way is very useful, as some lenders will write off some of the debt if you pay back most of the money that you borrowed to begin with.

These tricks don’t take long, but if you’re trying to cut your debt, they can have a lasting impact as your first steps!