Alternatives to Bankruptcy, Home Equity Loans and
Debt Consolidation Companies
 

Discussed below are other proactive steps you can take to speed up the process of putting an end to your high interest credit card debt without resorting to these dangerous and potentially harmful devices.

Are You Caught in the Lenders Trap?

What makes paying off credit card debt so difficult is the high interest you must pay. It consumes most of your payments leaving little if any to reduce your debt balances. Unless you take steps to substantially reduce these balances your debts and the payments you must make will last indefinitely. There are three general approaches to deal with this problem and speed up the process of paying off your high interest debt:

(1) By paying down debt principal using resources you may have.

(2) By maneuvering to reduce the rate of interest you are paying.

(3) By working out settlement arrangements with your creditors.

Using any of these devices will allow you to reduce the portion of your monthly payment that goes to pay interest which in turn will increase the portion that is applied to reduce debt principal. This will have a spiraling effect that will increase the rate of debt reduction with each payment and result in your debt being paid off much faster.

I guess the questions are how do you do this? What resources can you use to pay down debt principal? What opportunities are out there for you to reduce interest rates? How do you make deals with creditors? There are several techniques that can be used to do this but which of them are available to you and which of those is best for you depends on your individual situation.

Let’s take a closer look at the alternatives:

1.   Paying debt down using resources you may have

Resources from assets - Some of us in this dilemma may have resources like cash, stocks, bonds or other assets that can be sold to pay down debt. You may have a retirement plan from which you can borrow money (interest you pay goes to you). Normally, from a dollars and cents point of view it certainly makes sense to do this and apply these funds to pay down debt.

Resources from reducing living costs – Many of us are capable of reducing our living expenses (by doing some budgeting) to free up cash to pay down more debt. If you take a close look at what you’re spending you may be surprised at how much extra money can be freed up to pay down debt by exercising a little restraint.

Resources from increasing Income sources – Most of us are capable of getting part-time work or finding some other way to earn extra money at least for a temporary period of time. The additional income if applied to reducing debt would significantly speed up the process of paying the debt off.

2.   Maneuvering to reduce the interest you are paying

Payment tactics - You may be in a position to use payment prioritizing techniques (using the bulk of your resources to pay off the highest interest debt first). This will reduce interest costs and allow more money to be applied to debt principal.

Debt balance transfers – You may be able to take advantage of one or more of these offers that you get all the time to transfer debt balances to another card at a substantially lower interest rate. Under ideal circumstances these deals can be advantageous. But you have to be very careful of what it says in the small print and you must be meticulous in carrying out the terms of the agreement or it will backfire. For more details on the using these offers see Norm’s End Debt Tip # 10.

Unsecured debt consolidation loans – This is similar to balance transfers except it’s a more formalized loan. XYZ Credit may offer you a $25K line of credit at 8% with no collateral which you can use to payoff other credit card balances (at much higher interest rates). Sounds great so far but once again be sure you read the fine print to see just what the traps are and be sure you are ready to abide by their terms. For more details on these loans see Norm’s End Debt Tip # 10.

3.   Working out Settlements with your creditors

As we discussed in Norm’s End Debt Free Tip #5, if your debts are for the most part unsecured, you have primary control of the situation. This is because in most cases your creditors can’t get money from you unless you pay it to them voluntarily. This gives you significant leverage to negotiate settlement agreements with them. As I state in my book - How To Settle Your Debts - you have to “Make them an offer that makes no sense to refuse”. If you do it in the proper manner and you’re persistent, sooner or later they will work with you. It’s what I refer to as the “Godfather Principal” in debt collection.

Settlements can be made using reasonable lump-sum payoff offers. However, to do this, you must have the resources to make this type of payment. You can also do it by setting up a Workout Arrangement to pay them off over a specified period of time (usually 3 to 5 years). In my book How To Settle Your Debts I show you step by step how to set up these types of arrangements that can substantially reduce your financial burden, help you pay off your debts faster and limit further damage to your credit. A workout arrangement will allow you to get a fresh start without having to deal with the harm caused by filing bankruptcy or hocking your house with equity loans.

Other Benefits of Doing This

Using any of these devices to ease your debt dilemma will force you to take personal control of your finances which can make this a life altering exercise. It’s the surest way to change your spending habits and your mindset about money. We all learn from our mistakes and more so from the pain we must personally endure to correct them. Taking control, learning what you must about debt and the system and then dealing with your specific debt situation will certainly provide motivating pain. It will eliminate your propensity to spend beyond your means and redirect your energy from irresponsible spending to building a sound financial future.

There is another alternative, it’s called

“Skipping Out”

This is not something I recommend and for some it’s morally unacceptable but it is certainly an alternative you can consider and I would be remiss if I did not bring it to your attention. You can simply stop paying and - as they say in the collection business - “skip out” on your creditors. And, if you’re “judgment proof” (you have no assets or income that your creditors can take from you forcibly) and you don’t care about bad credit there’s not much your creditors or their collection agency enforcers can do. Even if they hire an attorney and file a law suit and get a judgment against you they still will not be able to collect.

The aftermath of doing this is that your credit will be trashed. And, you will have to be capable of withstanding the pressure and the other nonsense your creditors, the collection agencies and the attorneys they hire will throw at you. In addition, if judgments are obtained they could cause problems in the future if your financial circumstances change. But with out judgments these debts will eventually be charged off and become legally invalid as a result of the Statute of Limitations (this varies in each state – 6 years in NJ & NY). This means you will be off the hook – you won’t owe the money any more. More information on “Skipping Out” can be found in my book - How To Settle Your Debts.

Don’t Stop Now

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