Want to get out of debt? Here’s what NOT to do!
Ignoring the Problem
Burying your head in the sand will only make the day go by faster, however, all of your problems will still be there tomorrow. You can take steps to get collection agencies from pestering you for their client’s money, but no matter how many cease-and-desist letters you send, those debts will still be there.
Take a deep breath and face your debts head on. If there is a mistake that was made and you’re being hounded for money you don’t think you owe, take the proper steps to dispute the charge. If the debt is fair, acknowledge it and work out a plan to settle the account. You’ll be surprised what a weight off your shoulders it will be to simply acknowledge the problem out loud and take the first steps to take care of it.
Getting a Consolidation Loan With a Co-Signer
If you’re able to make the payments on all of your debts right now, but you’re not making any progress because high interest rates are adding more than what you can pay, then a consolidation loan might be right for you. A lower interest rate might mean you’ll finally be able to start paying down your debts instead of treading water.
If you don’t qualify for the consolidation loan on your own, or if you’re struggling to make the bare minimum payments on your debts, there is a good chance that a consolidation loan is too risky – especially for a co-signer. If you fail to make any payments on that loan, or if any of the payments are late, the co-signer’s credit will take the hit right along with you. You’ll risk ruining not only their credit, but your relationship as well.
Closing Overdue Accounts
Closing your charge accounts may prevent you from using them – and therefore accumulating more debt – but it won’t stop the interest from piling up. Closed accounts continue to accrue interest just like open ones and can actually make a negative impact on your current credit score. The amount of credit you have available compared to how much you’ve used is a key factor in determining your scores so closing accounts won’t do you any favors.
Continuing to use your cards is also a mistake. If you’re trying to pay off your creditors, you’ll never make real progress if you keep adding to what you owe. Cut up those cards so you won’t be able to use them, no matter how great the temptation, but leave the accounts open to protect your credit.
Assuming You Need a Credit Counselor
Don’t be afraid to make your own plan. If you only have a few accounts that need to be paid off, call them yourself and see if you can work out a payment plan or get your interest rates lowered. Most creditors are happy to work with anyone who is trying to make their payments, even if they are struggling.
There are also some common misunderstandings when it comes to credit counseling agencies. The most common is that a debt reduction plan will ruin your credit score. In the past this may have been the case, but today there is simply a notation on your accounts that you’re using an agency. Many agencies do charge a monthly fee, however, and it can take several years to work through their programs so keep all of this in mind when considering this option.
Thinking Bankruptcy Is Easy
Bankruptcy is anything but easy. It is a long and complicated process that will air out all of your financial dirty laundry in bankruptcy court. It is also powerless against mortgages, student loan debt, and a host of other expenses that are not eligible for discharge while putting a very serious stain on your credit report.
If you truly think bankruptcy is a possibility for you, seek the advice of a professional right away. Waiting too long to get advice will only make your financial situation worse and compound your problems. Having a bankruptcy attorney review your finances is not an obligation to proceed with a bankruptcy, and most will let you know upfront if you’re a good case for bankruptcy or not.
Using Retirement Accounts to Pay Debt
It can be hard to resist this account filled with cash that belongs to you when you have creditors hounding you for payments. No matter how desperate for peace you are now, you’ll be even more desperate in your retirement if you raid that fund. Retirement accounts are protected from debt collectors, even if you are sued or have your wages garnished, so take that as a signal that those funds are sacred.
Tackling your debts takes commitment and a bit of courage. Avoiding these common mistakes will not only get you out of debt faster, it will also be a big confidence boost. Every time you see real progress, you’ll become even more committed to reaching that debt-free goal.