“Get Out of Debt” Programs

Get Out of Debt

The American Way

Millions of Americans struggle with debt nowadays. It’s no wonder. Everywhere we look we are bombarded with offers to have the things we want even though we can not afford them. It is tempting and it is turning into the new “American Way”. Life, Liberty and the pursuit of a low-interest personal loan. According to a USA Today article written within the last year, the average household credit card debt is now $16,048.

It doesn’t appear as though this number is dropping anytime soon, either. Quite the contrary. In, 2017, the age of Trump is upon us and half the country may be unhappy in politics, they are all free to thrive economically. The stock markets have hit record strides this year and consumer confidence is still quite strong. Breaking records is great, but these times should instill caution in consumers. After all, what goes up must come down, right? The markets at all-time highs could turn into a crash unlike we’ve ever seen. In the event a market collapses, debt is sure to follow.

Dealing With Debt

Staying out of the grips of debt is like digging a hole in your backyard, and filling it back up regularly. If you do not fill the hole (pay your bills on time) it will keep growing. If you ignore the hole you’ll find someone else in your backyard digging the hole even bigger (your interest rates adding onto your balance). Until one day you step into your backyard and you fall right into the hole. It may seem impossible to get out of. This is the point many Americans start searching for a third party to help them get out of debt. But, who’s out there? What programs are available? Who is going to throw you down a ladder and help you fill that hole back up?

I would like to a couple of the commonly advertised “get out of debt” programs. I’ll let you know, briefly, what these programs entail so you could get a head start on your research and come to the best conclusion for yourself.

Debt Consolidation

I hear this term all the time. It is probably the most recognized term in the world of debt relief. Debt consolidation is the act of paying off all of your debts at once with some type of loan and paying off that loan in one lump-sum monthly payment. Debt situations vary from person to person.Therefore, the benefits of this method also vary.

In my professional opinion, debt consolidation could be a good idea for those with large amounts of debt. If you have many accounts to pay every month with high interest and your total debt exceeds your feasible means, debt consolidation may be a good idea. If you are in a position to get approved for a personal loan or a second mortgage on your house, you can use that loan to pay off all of your creditors at (hopefully) a lower interest rate and a lower monthly payment.

However, for people with a smaller amount of debt, this may not be the best idea. One of the downsides of using debt consolidation is that you pay off all your accounts at once. This means your credit report will have a number of accounts reading “Paid in Full”. So, you may have taken care of your monthly payments but, your creditworthiness may drop dramatically because of this. Understand all your options before you jump into a program like debt consolidation.

Debt Settlement

Debt settlement is also a commonly used term. It is also advertised on T.V. and the radio. Almost every American consumer can say they have heard of it but, few can actually tell you what it is. It is quite simple actually. Debt settlement is the process in which a debtor and their creditor agree to settle on a sum of lesser value than what is owed. This is usually possible when the account is old or in collections.

The pros and cons of this method reflect those of debt consolidation. Although you are getting away with a more comfortable payment, your future can be at risk. In most cases, when accounts are settled, your credit report will reflect just that. Instead of the account disappearing, you could end up with a big fat “settled” on your credit report. This is another thing that future lenders do not like to see. When they see things like this they may see you as too great a risk to do business with.

So What Should You Do?

Go to your bank. Many times (especially with younger people) people don’t understand what their bank is there for. It is not just there as a place for your direct deposit to go. A good bank has helpful people working in it who can help you understand your debt better and offer programs to help you out. This should always be the first place you turn to in the event you find yourself in a tight financial situation. A bank can offer you a personal loan or just simply sit down with you to help you make sense of what your options are. You may not always get approved for a loan at your bank but, it is worth a try. Many banks will play favorites with you for your continued business. Be loyal with your bank, show your face once in a while. It may help you down the road.

Before you start shelling out cash to the first snake-oil salesman who claims they can 100% guarantee your debt will go away in 6 months, know your options. Do your due-diligence and understand what is it you are getting yourself into. Your bank may be able to offer you a loan or at the very least, sit down with you and help you with your options.

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Dean Myerow
Dean Myerow retired as a municipal bond market asset manager for Las Olas Wealth Management in June 2018. He has earned degrees from the University of Massachusetts School of Business and the University of Miami School of Law.

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