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Trimming
the Fat on Debt
If you feel like you're hurdling over
bills that seem to keep growing, you're
not alone. Many people face a financial
quandary at some time in their lives.
Although debt can feel overwhelming,
it can be overcome. If you do some
research and make a commitment to
work on your issues, your financial
situation doesn't have to go from
bad to worse.
There are several options you may
consider: credit counseling, debt
consolidation, or bankruptcy. How
do you know what the best choice is
for you? Your total debt, your level
of discipline, and your plans for
the future are all contributing factors
and should be carefully considered.
Examine Your Credit
First thing's first. It's important
to start out with a clear idea of
your credit picture. Even if you don't
have a poor credit history, experts
recommend checking your credit regularly.
Getting a copy of your report allows
you to scan it for inaccuracies, see
how much you owe, and learn about
where your credit stands.
Credit Counseling
For credit counseling, you may want
to enlist the aid of a local branch
of the nonprofit National Foundation
for Consumer Credit (NFCC). The NFCC
offers free or low-cost debt counseling,
financial education, budgeting assistance,
and other financial services for consumers.
To locate an office nearby, you can
check the NFCC website at http://www.nfcc.org
or call toll-free 1-800-388-2227 for
24-hour automated office listings.
The NFCC also offers Debt Management
Plans that can sometimes lower your
payments, fines, or interest. A Debt
Management Plan offers a systematic
way to pay down outstanding debt.
The NFCC can often negotiate reduced
or waived finance charges and fewer
collection calls, so you might be
able to bring your debt under control
more quickly.
Debt Consolidation
If you have the discipline to work
out your finances on your own, you
may be able to lower your cost of
credit through specialized loans.
Taking out a home equity loan is a
popular way to consolidate debt. The
advantage of these loans is that you
enjoy certain tax advantages that
are not available with other kinds
of credit. However, think carefully
before using your home's equity to
pay off debt. If you can't make the
additional payment, you could lose
your home.
A debt consolidation loan is another
common way to consolidate debt, but
you have to remember that you are
simply transferring the debt to a
new lender. A debt consolidation loan
at a low interest rate could save
you money, but for many consumers,
a debt consolidation loan increases
their overall interest rate, commonly
with increased penalties if you fail
to pay the loan.
The costs of these consolidation loans
can add up. In addition to interest
on the loan, you may have to pay "points"
to get a lower interest rate. And
be careful not to start charging on
cards, because you'll end up having
to pay your debt consolidation loan
as well as your mounting credit card
bills, putting you deeper in debt.
Debt Repayment Programs
If you don't own a home or are reluctant
to borrow against your house, there
are other consolidation options. A
Debt Repayment Plan is also an option
for diminishing your debt. This option
requires you to deposit money each
month with a credit counseling agency,
who in turn pays your creditors according
to a set payment schedule. Some credit
counseling agencies charge little
or nothing for managing the plan;
others charge a monthly fee. With
a debt repayment plan, your credit
status may be affected by the plan
itself. This information about your
accounts can stay on your credit report
for up to seven years. However, if
you can avoid filing bankruptcy, a
debt repayment plan may be worth the
trouble. |
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