Vision Credit Education, Inc.

Debt can allow you to enjoy things while allowing you to pay them off over time. Debt can also enslave you to the financial institutions willing to lend to you. If the latter sounds more like your situation, consider these 5 ways to eliminate debt.

These are not all necessarily for everyone. In fact, you will probably only find that one or two of these methods will apply to your situation the best.

1. Sell an Asset

This may sound like a non-option, but selling an unneeded asset can do wonders to your finances. Consider that extra vehicle that you keep around. Sure it is convenient to have a truck for those 2 times a year you need to haul something. Once you factor in the license fees and insurance costs, you still might be talking about a few hundred dollars a year just to keep it on the road. It might be much cheaper to rent or borrow a truck when you need it.

A boat also a common off-limits asset. I see people frequently that refuse to give up their boat even though they can barely afford to put gas in it. Remember that boats are notoriously expensive to maintain. Also, keep in mind that the 2 best days in a boat owner”s life are the day you bought it and the day you sold it! Extra cash can be used to pay off your higher interest debt in a lump sum payment.

2. Increase your Payments

If your credit card minimum payment is $30, chances are $25 of it is interest. You don’t have to be a rocket scientist to know that it takes a long time to pay down a $1,000 balance at $5 a month!

Just an extra $5 a month can allow you to repay the debt in half the time. Keep in mind we are still talking in terms of years to repay it at this rate. Sending an extra $30 can allow you to repay the debt in a little over 2 years. This option assumes that you have extra money each month, but may sometimes lack the discipline to send more than minimum payments.

3. Work More

A second job can burn you out. So can overtime. Temporarily increasing your income in order to find more money for repaying debt can give you additional resources for eliminating your debt quickly. The extra stress from working more may be offset by the sense of relief you get by paying off a debt.

The best additional work is one that provides you with reasonable pay and satisfies some of your social needs. Bartending and waiting tables are often overlooked, but they provide some of the higher earning part-time jobs available. Best of all, these pay the most during the hours when you are probably away from your regular job anyway. Thursday through Saturday nights tend to carry higher tips, so use your time wisely. In addition, you can have fun on the job if you find the right work environment. Carefully choosing a schedule can help you limit any impact on your current job and any family or friends.

4. Complete Credit Counseling

Credit counseling is more than just helping you budget and manage your money. The common stigma that people place on credit counseling is that it is just for people that cannot manage their money. The truth is that over half of credit counseling clients were able to manage their money, but they fell victim to life changing events that made debt payment difficult.

Credit counselors also have a pretty effective tool for eliminating debt. It is called a debt management plan and it utilizes a special program available through major credit card companies where you can get a break on interest, fees and payments.

Most people that enroll in a debt management plan are able to repay their debt by making lower payments than before. This may seem counterintuitive, since repaying debt faster typically means that you have to increase your payments. However, these programs are so effective because participating creditors lower your interest rates by so much that your finance charges are often less than half what they were before. Where before you saw $5 of your $30 minimum payment go toward principal, a debt management plan could allow for your finance charges to drop to only $10 a month. Even if they reduce your payment from $30 to $22 on the account, you have just increased your principal payment to $12 from $5. Under the program, your payment also stays the same, so that even though your balance is dropping you keep sending in the same amount. Every single month, your finance charges end up less than the previous month and your principal payments increase, much like they do on an installment loan. That way, you can normally eliminate your debt in 3 to 5 years while making lower credit card payments.

5. File for Bankruptcy

At some point, you might need to consider throwing in the towel. Bankruptcy is an ugly option and it has all sorts of public humiliation often associated with it. It even has rather high costs, since most attorneys charge at least $2,000 to help you file for bankruptcy.

Still, bankruptcy may need to be one of your options. The biggest sign that you might need protection from your creditors is if you have several creditors in which you owe very large balances that are threatening legal action. Since it is illegal to threaten legal action without a reasonable expectation to follow through with it, you should consider such threats to be credible.

Bankruptcy can give you bad credit for up to 10 years. However, you might need to consider it as an alternative to judgments and garnishments that may be possible depending on your state of residency.

Non-Options for Eliminating Debt

Debt settlement is almost always a non-option. Companies that offer debt settlement services do nothing to shield you from legal action. They also pay themselves several thousands of dollars before they ever begin working on your behalf. If you were looking for help eliminating debt, then you just created another creditor for yourself by hiring a debt settlement company. Furthermore, every time you do settle on a debt, understand that the so called savings is considered a gift and is generally taxable as income. If your income is $40,000 a year and you save $5,000 by settling a debt, you will generally be taxed as if you earned an additional $5,000. Depending on your state and federal tax rates, this could result in up to $2,000 in additional taxes!

Credit repair is also a non-option for eliminating debt. Such companies promise to make these things just go away, but the only thing they do is file frivolous disputes to the 3 main credit bureaus every single month. These frivolous disputes are discounted as such by the credit bureaus, and they are ignored. Meanwhile, you keep paying them for something you could easily dispute on your own. If you through this money toward your debts rather than throwing it away, you could make your debts disappear and improve your credit.

The biggest mistake people make is to borrow money to eliminate debt. That’s like asking for a torch to put out a bonfire. You cannot eliminate debt by taking on more debt. This is why approximately 70% of homeowners that used home equity loans or a cash out refinance loan to repay credit card debt ended up in worse shape in as little as 2 years.

To eliminate debt, consider taking on one or two of the top 5 methods revealed above. The sooner you take action, the sooner you see results!