- 4 min read
- Weigh the pros and cons of each debt relief option.
- Try to negotiate reduced balance settlements.
- Take the right steps to avoid running up new debt.
A Personal Testimonial About Getting Help to Get Out of Debt
Read the following story about getting the help to get out of debt and learn how you can tackle your own financial problems.
I've never had trouble asking for help before, but when I realized I needed someone to help me get out of debt, I wasn't sure where to turn. I always vowed I would be different from so many of my friends who lost control of their debt. I knew I often overspent during holidays, but it wasn't until a few unexpected medical bills and car repairs came up that I realized how easy it was to become overwhelmed.
My friend Andy told me one of the best ways to pay off and manage debt involved either taking out a home equity loan or line of credit or refinancing a home mortgage and taking cash out. He said that paying down debt this way could not only reduce monthly payments, but also convert the interest being paid into a tax write-off. Unfortunately for me, I didn't own a home at the time.
Some less attractive options to help me get out of debt included borrowing against my 401-K or my life insurance policy. Taking money out of my 401-K would allow me to pay down my debt with interest-free cash. On the other hand, if I couldn't repay the money to the account within five years, all the early withdrawal tax penalties would apply to the withdrawn amount. And while my life insurance policy would allow me to take the cash out without a timeframe for repayment, any funds not repaid would be deducted from the amount that the policy would be worth to my beneficiaries. Since I was heading into a second marriage and bringing personal debt with me, that option didn't seem wise.
The television commercials for the debt negotiation services sounded too good to be true. Their claims that my creditors would settle for much less than I owed made me suspicious. I found out they advised their customers to stop making payments to their creditors while they negotiated the debt amount. That went against everything I'd ever heard, not to mention the large fees they charged to begin the process.
Conversely, debt consolidation agencies seemed much more reputable. Most were located inside credit unions or on college campuses. They were not for profit, didn't charge fees and helped their customers come up with viable plans for managing their debt. In serious cases, customers made one monthly payment directly to the debt consolidation agency which the agency then used to pay the customer's debt. However, the monthly payments weren't necessarily made by the individual creditors' due dates which led, in some cases, to lowered credit ratings. I needed help to get out of debt, but I wasn't ready to put my credit rating in someone else's hands.
In the end, I decided to negotiate with my creditors myself. I called each one and requested a lower interest rate in exchange for a set monthly payment schedule. Some negotiations were more successful than others, but by the time I'd finished, I was in a much better position to afford my total monthly payments.
Next, I took out a title loan on my car to help me get out of debt. I shopped quite a bit for the right rate that would save me money and the lender that would allow me to keep my car while I paid off the loan. I'd considered taking a signature loan that wouldn't have required collateral like a car, but the rate offered on the signature loan couldn't have saved me much interest, and I needed to be as mindful of interest rates as possible.
Getting my debt back under control wasn't easy, but negotiating with my creditors myself and taking out a low-interest title loan on my car really helped me get out of debt without damaging my credit rating. I feel I've done everything right so far in my second marriage. And I feel the choices I made to help me get out of debt make up a large part of that positive difference. I'm glad to be enjoying both of these second chances.
Did you know?
Mortgages, credit cards, student loans, personal loans, and auto loans are common types of debts. According to the NY Federal Reserve total household debt as of Q4 2023 was $17.503 trillion. Housing debt totaled $12.612 trillion and non-housing debt was $4.891 trillion.
A significant percentage of people in the US are struggling with monthly payments and about 26% of households in the United States have debt in collections. According to data gathered by Urban.org from a sample of credit reports, the median debt in collections is $1,739. Credit card debt is prevalent and 3% have delinquent or derogatory card debt. The median debt in collections is $422.
The amount of debt and debt in collections vary by state. For example, in New York, 20% have any kind of debt in collections and the median debt in collections is $1755. Medical debt is common and 6% have that in collections. The median medical debt in collections is $456.
Avoiding collections isn’t always possible. A sudden loss of employment, death in the family, or sickness can lead to financial hardship. Fortunately, there are many ways to deal with debt including an aggressive payment plan, debt consolidation loan, or a negotiated settlement.