Personal Debt Reduction

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Personal Debt Reduction can be an extremely long and drawn out process. If you have spent years struggling with tough financial problems, the answer will not become obvious to you overnight. It may take several months or even years to resolve severe debt problems but you can do it, if you persevere, are disciplined and get the right information. You do have options that can be very helpful to get started with; let’s review four of the most popular:

Debt and Credit Counseling. You  will soon find out there are many credit counseling firms competing to get your business. This option can be excellent if you are careful to shop around and conduct extensive research to locate the best plan out there for exact financial circumstance. A good credit counseling company can get your budget on track, stop collection calls and reschedule your debt payments so they are affordable. However, this option can turn out to be very harmful rather than helpful to your financial health. By conducting even preliminary due diligence you will soon learn there are many unscrupulous companies in the credit counseling industry that will charge overpriced fees and/or perform work that you can do easily on your own. You also will find there are a few government agencies and nonprofit companies that will provide excellent credit counseling for reasonable fees. Sometimes for modest fee commitments you will be able to find a professional credit counselor who will help you pilot through your debt quandary.

Credit Card Debt Consolidation. This option can be used to replace several high interest credit card debts into one, lower interest rate credit card balance. This tactic is commonly referred to as a low or zero interest balance transfer. If you do this be careful to pay the balance off before the low interest period expires otherwise you will end up with a balance having just as high or higher interest charges as before the transfer. You can also inquire if your bank or a consumer lending institution will offer an unsecured personal debt consolidation loan to you on favorable terms. This is similar to transferring your credit card balances to one lower interest credit card except  you will most likely have to pay an application fee whether your loan is approved or not. This strategy generally requires a good credit score and is more difficult today than in the past few years given the current tight credit markets.

First Mortgage Refinancing. Even with interest rates fluctuating up and down, refinancing the first mortgage on your home with a mortgage having a much lower interest rate can make good financial sense.  All other terms being equal, refinancing with a much lower interest rate can save hundreds of dollars on your monthly mortgage payment. Money saved on the monthly mortgage payment can be used to pay off consumer and credit card debt. Just make sure the new mortgage is not a tradeoff between a much lower interest rate and other horribly unfavorable terms such as an adjustable rate or vastly extended term as in a fifty rather than a thirty year amortization.

Equity Cash Out. Another option available if you own a home and have reasonable equity built up is to “cash out” the equity in your home with a second mortgage loan to pay off your high interest credit card debt. Although you are replacing one loan for other loans you will be doing so with lower interest rates and most likely much lower payments. Ask your tax advisor about deducting the interest on your new second mortgage. Credit card debt is not a tax deductible item however a home equity loan most often is. If you can deduct the interest charge, you will end up reducing your debt as well as reducing your tax liability as well.
Now you have four viable personal debt reduction solutions to consider. However, don’t stop here. Be sure and learn all you can about each of these options then act by selecting the plan that is right you’re your unique financial situation.

About Personal Finance Debt Reduction

Sometimes debt can’t be reduced easily. If have you read the material above you realize there are many ways you can accomplish debt reduction and even to get out of debt altogether. However, if your debt becomes much too big and overwhelming, then you can always declare bankruptcy. According to a recent study by the Federal Reserve, one out of every one hundred American families will declare bankruptcy each year.

Bankruptcy should be seen as a last resort because of the future cost a family will have to pay in interest costs, lack of financing, insurance premiums and potential lost job opportunities. Reduce debt without filing for bankruptcy if at all possible. Start with plan for credit card debt reduction then include all other personal debt.  Consumer credit counseling is often a great way to get professional help so you don’t have to go it alone.