America has a massive debt problem. Last year, consumer debt approached $14 trillion:
That’s $144,000 for each U.S. household. And for each of those families, making the conscious decision to get out of debt — and then figuring out how to actually do it — isn’t easy. It requires research, a detailed plan and a supportive environment, whether that’s your spouse, family members, financial adviser, credit counselor or other debt expert.
The good news is that there isn’t one right way to get out of debt. The path (or multiple paths) you choose depends on your unique circumstances, such as the amount of debt you owe, the type of debt and your short-, mid- and long-term financial goals.
Sometimes it makes sense to pay down your debt incrementally, by focusing on budgeting or increasing your income. This may involve using strategies like the debt snowball or debt avalanche. Both of these methods require you to make minimum monthly payments on your existing debt, plus find a little more in your budget each month to put additional money down.
Here are a few more questions to consider:
Depending on your circumstances, there are several options to consider.
With a debt management plan, for example, a credit counselor works on your behalf to reduce your interest rates and fees and create a payment plan. Or you may choose to negotiate with creditors to pay less than the full balance of your debt. You can do this yourself or work with a professional negotiator, who knows the ins and outs of working with specific creditors.
A great place to start is to explore your options using this handy tool: See your options now.
And then check out the resources below to learn more about each strategy to resolve your debt and ease your stress.
First, start by doing research on credit counseling agencies. Even if the agency is a nonprofit, that doesn’t mean it’s reputable or competent. Both the National Foundation for Credit Counseling and the Financial Counseling Association of America are good starting places for finding accredited agencies.
Look for an agency that will negotiate with your creditors to reduce their fees as part of your plan. And while most credit counseling agencies charge a monthly fee for their services, many will make accommodations for financial hardship if you qualify. Find out more about debt management plans here.
Steer clear of agencies that don’t offer general budgeting advice or that don’t discuss your financial situation and goals before enrolling you in a DMP. In addition, be wary of agencies that use your counseling session as an opportunity to upsell you ancillary products and services, such as credit protection insurance or credit repair services.
Before choosing a company, check with your state’s attorney general as well as your local consumer protection agency to see what kind of consumer complaints may be on file for the company you selected. We recommend finding a responsible alternative to traditional debt settlement companies (such as the service providers in the Resolve Network.)
Many large debt settlement companies won’t work with you if you have less than a certain amount of unsecured debt. Some may also charge you a fee as high as 20 to 25% of your total debt. (By contrast, service providers in the Resolve Network charge only 15% of what they save you, providing them with an important incentive to negotiate with your best interests in mind.)
In addition, avoid companies that charge fees in advance of settling your debt; this is illegal according to the Telemarketing Sales Rule. You should also note that in some cases, the debt settlement company will be NOT be able to settle all your debts. The Consumer Financial Protection Bureau outlines other risks you should consider when working with a debt settlement company. You can also learn more about specific companies and other red flags to watch out for here.
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