Take control of your finances before the recession catches up to you
With the worldwide economy in the largest, fastest contraction in decades, more and more people are facing financial crisis. Many financial experts have determined that our current economic slowdown qualifies as a recession, with all the hardships that go along with it, including rising prices and falling wages.
Unfortunately, the spending trends that preceded this slowdown have left many people with a huge burden of debt. With thousands of layoffs occurring nearly every day, it might be time to critically evaluate your financial situation and get out from under your accumulated debts while you’re still in a condition to do so. Don’t wait until you have to face a pay cut or a layoff to take action.
If you're already facing mounting bills, your situation might seem hopeless. But, in actuality, this might be one of the best times to buckle down and seriously negotiate your debt, to get it under control before your personal situation gets any worse. With many people losing their jobs and faced with no other alternative than personal bankruptcy, which leaves creditors with nothing, your creditors might be more open to negotiation than under normal conditions.
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Options you can pursue for debt relief
There are several alternatives available to help get your debt under control. Some more common options are listed below.
Debt consolidation. Debt consolidation involves paying off all your high-interest credit card debt, as well as other debt such as a student loan or car loan, with a single, lower-interest loan. This way you can save a great deal of money in the long run, as well as making your debt more manageable. Many people use a Home Equity Line of Credit (HELCO) or a second mortgage to consolidate debt. This can be effective, but watch the fees and points because they can be quite expensive.
Debt loans. Debt loans are another form of debt consolidation. Loans issued specifically to handle debt can have different terms than HELOCs or a second mortgage. If you choose to take out a debt loan, be sure to carefully consider interest rates to be sure you won’t end up paying more than you would have with your original loans.
Debt settlement. Debt settlement involves negotiating your bills directly with your creditors. You might be able to arrange for a lower interest rate, lower payments, lower amount owed or suspension of payments for a period of time. While negotiating your debt with your creditors might be intimidating and could ultimately hurt your credit, it could also be the best way to get your debt under control.
New government programs. In conjunction with corporate bailouts and various relief programs to help mitigate the mortgage crisis, the Federal government has also instituted new policies to help individuals struggling with tax debt or mortgage debt. Consulting with an accountant or a financial planner familiar with the new tax relief policies could help you significantly reduce your debt burden.
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What’s the right option for me?
The right option for gaining control of your debt depends entirely on your personal situation. Whatever choice you decide to pursue, be sure you have sufficient information to ensure you won’t end up with higher payments, higher interest, or both. It’s important to know exactly what you’re getting into with any form of debt relief to avoid landing right back in the vicious circle of too-high interest and too much debt.
If you’re not sure what the best debt consolidation option might be for your particular circumstances, it might be beneficial to consult with a debt counselor. The Department of Housing and Urban Development provides contact information for credit counselors who will help you work out a plan to bring your debt under control. These counselors work often work free-of-charge or for low fees.
Even if you work with a debt counselor who charges you for his or her services, using a counselor can save you time and money in the long run. Debt counselors will be able to supply information about helpful services without you having to spend the time to research your options. They’ll also be able to help you ensure you don’t end up with higher interest rates than you started with, and can construct a plan that might help you pay off your debt even more quickly than you thought you could. Both of these arrangements will save you money in interest paid over time.
Whatever form of debt relief you choose to pursue, do so before your debt reaches a point where you’re missing payments or receiving letters from creditors. The sooner you attack the issue, the better—and there’s no time like the present.