What is the Debt Trap?

Adulthood means a job or career, living on one’s own or with a partner and family, earning money and paying monthly bill obligations. If one is careful and responsible and no serious conditions arise, all should be well. Unfortunately, for over half of Americans, this is not the picture that has developed. For a variety of reasons, people find themselves overburdened with debt, not even remembering how much of it was incurred. They are now trying to figure out how to break free from the debt trap, but don’t know how. Getting the right debt help can make all the difference.

Your Options are Numerous

Dependent upon your individual circumstances, it is now time to be proactive. Life is not fun if every penny earned is spent paying off debt that was incurred months, maybe years ago. There is no end in sight with high interest credit card and revolving debt that will take years to pay off with nothing to show for it. The options are as follows:

1. If you own a home and have equity in that home, consider an equity loan or a cash out refinance which will enable you to pay off the old debt and secure a lower payment with lower interest rate. This is a great option if one’s credit rating is still good and payments have all been made on time.
2. If you have a 401K, you can borrow from it to pay the old debt off. Repayment into the 401K will be paying back into permanent savings, and this is a good thing.
3. Debt consolidation is the process of obtaining a single large loan to pay off all of the old debt, giving the debtor a lower single payment. This frees up cash each month for other things, like beginning a savings and investment plan. An individual debtor can secure the loan by himself, if his credit rating is still good, from a bank or credit union. If credit is already not good, due to late or missed payments, the services of a debt consolidation professional may be required. There will be fees and the loan may carry a higher rate of interest, but if it gains a lower payment, it is still valuable.
4. Debt settlement is an option for debtors who are 60+ days late in several loan payments. This process involves negotiations with each creditor in order to gain lower payments, interest rates and reduction in total loan amount. An individual debtor may be able to conclude this process by himself, but, more often than not, a professional who has the contacts, the skills and the time will be needed. Again, there are fees involved, but the results can be quite satisfying, especially if total debt amounts can be reduced by a significant amount. Some of these negotiations may involve collections firms as well, and the professional is best suited to deal with these companies.

Once you have broken free from the debt trap, vow never to get caught again. You do this by cutting up all credit cards but one, so that you have one emergency “out” if a true emergency arises. The excess money each month needs to be put into savings, so that cash is available for things you want. As well, a certain amount must be placed into long-term investments, to help with your sound financial future.