How To Get Out Of Debt

18 Jan How To Get Out Of Debt

There are numerous ways to get out of debt. The first is obvious: find a way to make minimum payments until the problem is resolved. Unfortunately, in today’s economic climate, the credit card companies charge so much in interest, that it takes years to pay off even a modest amount of principal. You can always try to talk the credit card company into freezing or reducing the interest, but that rarely works.

There are also debt relief credit counseling agencies that will help you. They come in two types. There are companies that will take a portion of your pay check each month and make a payment on your credit cards. This can work if you have a steady pay check and can afford to delegate a portion of it to paying your debt. But, you will have to designate a percentage of your take home pay to do this and part of that will go to the agency helping you. So, this too can many years to resolve your debt.

The other type of debt relief agency advertise that they “know something the credit industry doesn’t want you to know.” This, of course, is largely hype. The “secret” is that the credit card companies will reduce the amount you owe to settle the debt. But they will only do this for cash, not for payments. So, these companies help you amass enough money to make a cash offer. And you will be paying the agency to help you save the amount needed. Meanwhile, your credit is still terrible, and, in many cases, interest is continuing to grow on the credit card account. Although there are some legitimate companies around, be very wary of these arrangements. More often than not, you will end up paying thousands of dollars in fees to the credit agency to help you save enough to pay the credit card bill.

Lastly, there is bankruptcy. There are two general types: bankruptcies that simply discharge your unsecured debt like credit cards and medical bills; and bankruptcies that “re-organize” your finances to pay off some debts over time. Either way, most, if not all, of the money owed on your credit cards will go away.

Bankruptcy is almost always the quickest way to get rid of debt. Even if you sign up for a five year repayment plan, this is often quicker than using either type of credit counseling agency to pay off the credit cards.

My best advice: if you’re having debt problems, seek a competent bankruptcy attorney. He can help steer you to the best approach for your situation.

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Douglas Jacobs is a California bankruptcy attorney and partner in the Chico law firm of Jacobs, Anderson, Potter & Chaplin. Since 1988, Mr. Jacobs has taught Constitutional law and Debtor-Creditor/Bankruptcy law at the Cal Northern School of Law. He has served as Dean of Students since 1994. He is a frequent lecturer on the subject of consumer bankruptcy law, and has spoken at both state and national levels.
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