The Right Way To Get Out Of Debt

By Layla Vanderbilt

Many Americans struggle with the burden of too much debt and a large number of people work hard just to clear bad debt from their credit history. The vicious circle of late payments + penalties + punitive interest rate increases makes you feel trapped. And with a history of bad debt, getting a new car or home loan seems impossible. But be wary of companies that offer to help you get out of debt. You could end up in worse shape as a result of their help.

Usually, companies offer to negotiate with bill collectors so that your payments are reduced. Be aware that while this tactic may get you out of debt faster it may actually make your credit rating worse. Assuming that the company is able to negotiate successfully for a payment schedule you can afford, that debt will remain on your credit report as bad, lowering your credit score.

There is one way, though, to wriggle out of your debt position and repair your credit score simultaneously, by repaying the entire loan in one go, which may not be at the agreed rate. This can be accomplished by availing a debt consolidation loan, which means that you may pay off all your loans in one go so that you are left with only one kind of loan at the end of it.

Often the interest rate will be lower on a debt consolidation loan than it is on the credit card debt and other debt that you now carry. If it is within your means to get a debt consolidation loan and pay off all of your debt in one monthly payment, this is the preferred option. It not only enables you to get out of debt, it can also help to raise your credit score dramatically.

Another good option for paying off debt is a home equity loan. If you have enough equity in your home, you can obtain a loan at a much lower interest rate than you have on your current debt and, depending on the amount borrowed, your monthly mortgage payment may not increase too much for you to be comfortable with it. This method will save you thousands of dollars in interest payments and can dramatically reduce the number of payments that you have to make each month.

Remember that whenever you plan to avail a sizeable loan, either to purchase a home or a car, your credit score and credit history are very crucial. This will help you to obtain a big loan with low interest, which is what you are aiming at. If you allow your credit score to suffer, you may end where nobody will be prepared to even give you a loan which attracts high interest and is equally unsafe at the same time. - 23159

About the Author:

Layla Vanderbilt is the content coordinator for a leading website that offers for debt consolidation advice and guidance.