Get Out of Debt Fast

So you want to get out of debt fast.  How fast you can get out of debt depends on several factors:

- How much you owe

- How much extra cash you can throw at debt reduction.

- Who can help you

To figure out how fast you can get out of debt you have to understand your current financial health and the options you have to pay down debt:

Help yourself

Developing a Budget: The first step toward taking control of your financial situation is to do a realistic assessment of how much money you take in and how much money you spend. Start by listing your income from all sources. Then, list your “fixed” expenses — those that are the same each month — like home payment payments or rent, car payments, and insurance premiums. Next, list the disbursements that vary — like entertainment, recreation, and clothing. Writing down all your expenses, even those that seem insignificant, is a helpful way to track your spending habits, identify necessary expenses, and prioritize the rest. The goal is to make sure you can make ends meet on the basics: housing, food, health care, insurance, and education.

Your town library and bookstores have information about budgeting and money management techniques. In addition, computer software programs can be useful tools for developing and maintaining a budget, balancing your checkbook, and creating plans to save money and pay down your debt.

Contacting Your Creditors:

Contact your creditors now if you’re having difficulty making ends meet. Tell them why it’s difficult for you, and try to work out a new payment plan that reduces your payments to a more manageable amount. Don’t wait until your debts have been turned over to a debt collector. At that stage, your creditors have given up on you.
Dealing with Debt Collectors: The Fair Debt Collection Practices Act is the federal law that dictates how and when a debt collector may contact you. A debt collector may not call you before 8 a.m., after 9 p.m., or while you’re at work if the collector knows that your employer doesn’t approve of the calls. Collectors may not provoke you, lie, or use unfair practices when they try to collect a debt. And they must honor a written petition from you to stop further contact.

Managing Your Auto and House Loans: Your debts can be unsecured or secured. Secured debts usually are tied to an asset, like your automobile for a automobile loan, or your house for a mortgage. If you stop making payments, lenders can reclaim your automobile or foreclose on your residence. Unsecured debts are not tied to any asset, and include most credit card debt, debts for medical care, signature loans, and debts for other types of services.

Most automobile financing agreements allow a creditor to repossess your car any time you’re in default. No notice is required. If your car is repossessed, you may have to pay the balance due on the loan, as well as towing and storage costs, to get it back. If you can’t do this, the creditor may sell the car. If you see default imminent, you may be better off selling the auto yourself and paying off the debt: You’ll avoid the added costs of repossession and a negative entry on your credit report.
If you fall behind on your house payment, contact your lender at once to avoid foreclosure. Most lenders are willing to work with you if they believe you’re acting in good faith and the situation is temporary. Some lenders may reduce or suspend your payments for a short time. When you resume regular payments, though, you may have to pay an increased amount toward the past due total. Other lenders may agree to change the terms of the house payment by extending the repayment period to reduce the monthly debt. Ask whether over-and-above fees would be assessed for these changes, and calculate how much they total in the long term.

If you and your lender cannot work out a plan, contact a housing counseling company. Some agencies limit their counseling services to homeowners with FHA mortgages, but many offer free help to any homeowner who’s having trouble making home payment payments. Call the local office of the Department of Housing and Urban Development or the housing authority in your state, city, or county for help in finding a legitimate housing counseling bureau near you.

Credit Counseling and Debt Management Plans

Credit Counseling: If you’re not knowlegable enough to create a feasible budget and stick to it, can’t work out a repayment plan with your creditors, or can’t keep track of mounting bills, consider contacting a credit counseling organization. Many credit counseling organizations are nonprofit and work with you to solve your money issues. But be aware that, just because an organization says it’s “nonprofit,” there’s no guarantee that its services are free, affordable, or even legitimate. In fact, some credit counseling companies charge high fees, which may be hidden, or urge people to make “voluntary” contributions that can cause more debt.

Most credit counselors offer help through local offices, the Internet, or on the telephone. If possible, find an organization that offers in-person counseling. Many schools, military bases, credit unions, housing authorities, and branches of the U.S. Cooperative Extension Service operate nonprofit credit counseling programs. Your debt institution, state consumer protection agency, and friends and family also may be good sources of information and advise.

Honest credit counseling groups can advise you on managing your money and debts, help you come up with a budget, and make available free educational materials and workshops. Their counselors are certified and trained in the areas of consumer credit, money and debt management, and budgeting. Counselors discuss your entire financial situation with you, and help you develop a personalized plan to solve your money troubles. An initial counseling session typically lasts an hour, with an provide of follow-up sessions.

Debt Management Plans: If your debt troubles root word from too much debt or your inability to repay your debts, a credit counseling authority may suggest that you enter in a debt management plan (DMP). A DMP alone is not credit counseling, and DMPs are not for everyone. You should sign up for one of these plans only after a certified credit counselor has spent time thoroughly reviewing your fiscal state of affairs, and has provided you custom-made advice on managing your money. Even if a DMP is right for you, a well known credit counseling organization still can help you create a budget and teach you money management skills.

In a DMP, you deposit money each month with the credit counseling organization, which uses your deposits to pay your unsecured debts, like your credit card debts, student loans, and medical bills, according to a payment schedule the counselor makes with you and your creditors. Your creditors may agree to lower your interest rates or waive certain fees, but check with all your creditors to be sure they offer the deal that a credit counseling organization describes to you. A reputable DMP requires you to make regular, timely payments, and could take 48 months or more to complete. Ask the credit counselor to estimate how long it will take for you to complete the plan. You may have to agree not to apply for — or use — any additional credit while you’re active in the plan.

Protect Yourself

Be leery of credit counseling organizations that:

charge high up-front or monthly fees for enrolling in credit counseling or a DMP.

force you to make “voluntary contributions,” another name for fees.

won’t send you free information about the help they provide without requiring you to provide personal money information, such as credit card account numbers, and balances.

try to enter you in a DMP without spending time reviewing your debt state of affairs.

offer to enroll you in a DMP without teaching you budgeting and money management techniques.

require that you make payments into a DMP before your creditors have accepted you into the program.

Debt Consolidation

You may be able to lower your cost of credit by consolidating your debt through a second home payment or a house equity line of credit. Remember that these loans demand you to put up your residence as collateral. If you can’t make the payments — or if your payments are late — you could lose your house.

What’s more, the costs of consolidation loans can add up. In addition to interest on the loans, you may have to pay “points,” with one point equal to one percent of the amount you borrow. However, these loans may provide some tax advantages that are not provided by with other kinds of credit.

Bankruptcy

Personal bankruptcy generally is considered the debt management option of last resort because the results are long-lasting and far reaching. People who follow the bankruptcy rules receive a discharge — a court order that says they don’t have to repay certain debts. However, bankruptcy information (both the date of your filing and the later date of discharge) stay on your credit report for 10 years, and can make it difficult to obtain credit, buy a residence, get life insurance, or sometimes get a job. Still, bankruptcy is a legal procedure that offers a fresh start for people who have gotten into debt difficulty and can’t satisfy their debts.

There are two primary types of personal bankruptcy: Chapter 13 and Chapter 7. Each must be filed in federal bankruptcy court. As of April 2006, the filing fees run about $274 for Chapter 13 and $299 for Chapter 7. Lawyer fees are increased and can vary.

Effective October 2005, Congress made sweeping changes to the bankruptcy laws. The basic effect of these changes is to give people more inducement to seek bankruptcy relief under Chapter 13 rather than Chapter 7. Chapter 13 allows people with a reliable income to keep property, like a mortgaged household or a car, that they might otherwise lose through the bankruptcy process. In Chapter 13, the court approves a repayment plan that allows you to use your future income to pay off your debts during a three-to-five-year time period, rather than give up any property. After you have made all the payments under the plan, you will get a release of your debts.

Chapter 7 is known as straight bankruptcy, and involves liquidation of all assets that are not exempt. Exempt property may include cars, work-related tools, and basic household furniture. Some of your property may be sold by a court-appointed official — a trustee — or turned over to your creditors. The new bankruptcy laws have changed the time period during which you can receive a discharge through Chapter 7. You now have to wait 8 years after being granted a discharge in Chapter 7 before you can file again under that chapter. The Chapter 13 waiting period is much less and can be as little as two years between filings.

Both types of bankruptcy may reduce unsecured debts and halt foreclosures, repossessions, garnishments and utility shut-offs, and debt collection activities. Both also provide exemptions that allow people to keep certain assets, although exemption amounts vary by state. Note that personal bankruptcy commonly does not wipe out child support, alimony, fines, taxes, and some student loan responsibility. And, unless you have an acceptable plan to catch up on your debt under Chapter 13, bankruptcy usually does not permit you to keep property when your creditor has an unpaid house payment or security lien on it.
Another major change to the bankruptcy laws affect certain requirements that a consumer must open prior to filing for bankruptcy, no matter what the chapter. You need to get credit counseling from a government-approved organization within six months before you file for any bankruptcy protection. You can get a state-by-state list of government-approved organizations at www.usdoj.gov/ust. That is the website of the U.S. Trustee Program, the organization within the U.S. Department of Justice that supervises bankruptcy cases and trustees. Also, before you file a Chapter 7 bankruptcy case, you must satisfy a “means test.” This test requires you to substantiate that your income does not exceed a certain amount. The amount varies by state and is provided by the U.S. Trustee Program at www.usdoj.gov/ust.

Debt Negotiation Programs

Debt negotiation differs greatly from credit counseling and DMPs. It can be very risky, and have a long term negative impact on your credit report and, in turn, your power to get credit. That’s why many states have laws regulating debt negotiation companies and the services they provide. Contact your state Attorney General for more info.

The Claims

Debt negotiation firms may claim they’re nonprofit. They also may claim that they can arrange for your unsecured debt — generally credit card debt — to be paid off for anywhere from 10 to 50 percent of the balance owed. For example, if you owe $10,000 on a credit card, a debt negotiation company may claim it can set up for you to pay it off with a reduced amount, say $4,000.
The companies often say their help as an alternative to bankruptcy. They may advertise that using their advise will have little or no negative impact on your ability to get credit in the future, or that any negative information can be removed from your credit report when you accomplish their debt negotiation program. The firms usually tell you to halt making payments to your creditors, and instead, send payments to the debt negotiation company. The firm may promise to hold your funds in a special account and pay your creditors for you.

The Truth

Just because a debt negotiation firm describes itself as a “nonprofit” organization, there’s no guarantee that the advise they make available are any good. There also is no guarantee that a creditor will agree to partial payment of a legitimate debt. In fact, if you stop making payments on a credit card, late fees and interest normally are added to the debt each month. If you exceed your credit limit, extra fees and charges also can be added. This can cause your original debt to multiply. What’s more, most debt negotiation organizations charge customers substantial fees for their help, including a fee to establish the account with the debt negotiator, a monthly service fee, and a final fee of a percentage of the money you’ve supposedly saved.
While creditors have no responsibility to agree to negotiate the amount of money a consumer owes, they have a legal obligation to provide correct information to the credit reporting bureau, including your failure to make monthly payments. That can result in a unfavorable entry on your credit report. And in some situations, creditors may have the right to sue you to retrieve the money you owe. In some instances, when creditors win a lawsuit, they have the right to garnish your wages or put a lien on your home. Finally, the Internal Revenue Service may consider any amount of forgiven debt to be taxable income.

Damage Control

Turning to a organization that offers help in solving debt troubles may seem like a reasonable solution when your bills become unwieldy. But before you do business with any firm, check it out with your state Attorney General, state consumer protection authority, and the Better Business Bureau. They can tell you if any consumer complaints are on file about the firm you’re considering doing business with. Ask your state Attorney General if the company is required to be licensed to work in your state and, if so, whether it is.

Some organizations that provide to help you with your debt worries may charge high fees and fail to follow through on the advise they sell. Others may misrepresent the terms of a debt consolidation loan, failing to explain some costs or inform you that you’re signing over your residence as collateral. Organizations advertising voluntary debt reorganization plans may not explain that the plan is a bankruptcy filing, tell you all that’s involved, or help you through what can be a hanker and complex process.

In addition, some companies guarantee you a loan if you pay a fee in advance. The fee may range from $100 to several hundred dollars. Resist the temptation to follow up on these advance-fee loan guarantees. They may be not be legal. It is true that many legitimate creditors provide extensions of credit through telemarketing and require an application or appraisal fee in advance. But legitimate creditors will not guarantee that the consumer will get the loan — or even represent that a loan is likely. Under the federal Telemarketing Sales Rule, a seller or tele-marketer who guarantees or represents a high likelihood of your getting a loan or some other extension of credit may not ask for or accept payment until you’ve received the loan.
You should be cautious of claims from so-called credit repair clinics. Many organizations appeal to customers with poor credit histories, promising to clear up credit reports for a fee. But you already have the right to have any inexact information in your file fixed. And a credit repair clinic cannot have accurate information removed from your credit report, despite their promises. You also need to know that federal and some state laws prohibit these companies from charging you for their help until the services are fully performed. Only time and a responsible effort to repay your debts will improve your credit report.

If you’re thinking about getting help to stabilize your financial state of affairs, do some homework first. Find out what services a organization provides and what it costs, and don’t rely on verbal claims. Get everything in writing, and read your contracts carefully.

All the best to you!