How To Determine The Best Debt Elimination Strategy

Getting out of debt is a common goal shared by millions of people. The journey to a life of debt free living is often long and filled with numerous obstacles. The people who have made the journey before you are living proof that life without debt is possible. In order to be successful you must first understand that the best way to eliminate debt is not the same for every person. All to often a person who is desperate to eliminate debt will jump at any opportunity to get the process started. While it is true that each day you carry high interest debt costs you money that could be used elsewhere, acting impulsively when selecting your debt elimination strategy can cost you more in the long run.

 
There are several popular methods of debt elimination being used today. So how do you know which one is the best? The answer is different for each person. Because no one has the exact same financial circumstances, finding the best debt elimination strategy may require a bit of effort on your part. The following debt elimination strategies can be successful when applied to the right financial situation.

• Budget and negotiate- The first line of offense is good old fashioned hard work. This involves tweaking your budget (or making one) that makes the best use of every available dollar. Do this by cutting unnecessary spending, increasing income or both. Next contact all creditors and ask them to lower interest rates or see if there is anything they can do to make your terms more favorable. Finally list debt by highest interest or lowest balance and begin paying as much money as possible to the first account on your list. Maintain minimum payments on other accounts. Do this until the first account is paid off then begin on the next account, repeat until all accounts are paid off. Works best for people who have all accounts in good standing and the resources to apply more than the minimum payment to at least one account.
• Debt consolidation loan- Technically this method is not really debt elimination. By borrowing money to pay high interest debt you are simply replacing one debt for another. This can work in certain circumstances if the new loan has a much lower interest rate. Most debt consolidation loans are secured loans, backed by your home or other assets. This can be a problem if you have problems paying your debt in the future. Works best for people who are committed to reducing debt, have accounts in good standing and the ability to meet the terms of the new loan.
• Credit counseling/Debt management plan- This is a voluntary or court ordered method of debt elimination that utilizes the help of a third party company (credit counseling agency) to help manage debt. The credit counseling agency negotiates with creditors to reduce interest rates and fees. They create a debt management plan which is a structured payment schedule to help clients get their accounts in good standing and begin reducing debt. The credit counseling agency collects one monthly payment from the client and pays each creditor from that payment. Works best for people who are unable or unwilling to manage their accounts properly. It is okay to have some accounts that are past due but you must have a reasonable expectation of being able to make your monthly payment to the credit counseling agency.
• Debt settlement- The last stance before filing for bankruptcy, debt settlement involves negotiating a settlement that is less than the balance owed. Settlements have been negotiated for less than half of the amount owed making this process one that can truly eliminate debt. It is also a process that has potentially negative consequences and should be used as a last resort. Works best for people who are experiencing a financial hardship and have accounts that are or about to become delinquent. This process is not for someone who has the financial resources to work out a repayment plan or pay minimum payments. You must either have or plan to have money available for lump sum payments.

 
The best debt elimination strategy is the one that matches your financial situation. Consider your current circumstances, ability to make payments and level of financial hardship to best determine which method can help improve your situation.