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Top 10 Ways to Get out of Debt: Debt Settlement Is Just One Option

By DebtSettlements.com Staff

Getting out of debt is never easy, but if you struggle with overwhelming debt or even just a small amount of debt, there are options ahead of you. You must consider your options and decide which best fits your budget and needs.

1. Pay More Than the Minimum

The most obvious way to pay down your debt is to stop adding to it and pay more than the minimum. For those struggling with insurmountable debt, this simply is not feasible.

2. Debt Settlement

Debt settlement involves negotiating with your creditors so that you pay a lump sum to them in return for having some of your debt forgiven. This typically becomes an option after you are three or more months behind on payments.

3. Pay Smallest Balance First

One theory about paying down debt is to pay your smallest off first, then roll that payment onto the debt with the next smallest balance, adding it to the minimum you were already paying. Eventually the entire debt is paid off.

4. Pay Down the Highest Interest Rate

This process works the same as the previous one, but instead of starting with the debt that has the smallest balance, you start with the debt with the highest interest rate, which is your most financially damaging debt.

5. Cash Out Savings

If you have a savings account that is earning two or three percent interest, yet are dealing with debt charging 15 percent or more, you may be more financially stable by cashing out your savings, paying down your debt, and then saving again.

6. Borrow from Life Insurance

If you have a whole life insurance policy, it likely has built a cash value. In these cases, you can borrow against the policy. This is still debt, but this debt has a substantially lower interest rate, thus you can pay it off quicker.

7. Use Your Equity

If you own your own home, even if it still has a mortgage on it, you may have some equity. A home equity loan will have a lower interest rate than your credit cards. You can borrow against your home to pay down your credit cards. Do not do this if you cannot keep up with the payments, because your home will be the collateral against the loan.

8. Borrow from Retirement Funds

If you have a 401(k) or similar retirement fund, you can borrow against it or cash out some of its value to pay down debt. In this scenario, the interest paid goes back into your retirement fund. However, you will have tax penalties for these loans or for cashing out the value before you reach the age of 59 ½.

9. Borrow from Someone

If you have a rich relative or trusted friend who trusts you, consider borrowing from them to repay your credit card debt. Do not enter into this agreement if you cannot make the payment, though, or you put your relationship at risk.

10. Bankruptcy

Bankruptcy should be a last resort. By filing bankruptcy, you are declaring that you cannot pay your debts. Your credit will be severely impacted by bankruptcy. Even so, you may not be able to dismiss all of your debts in bankruptcy, so you may still need to pay them but will take a huge credit rating penalty. Bankruptcy provides court protection against collection actions.
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