Getting out of debt is an important goal. Some people simply forget to pay debts and the debts accumulate with interest. Several other persons who make default in paying debts and bills, fail to contact their creditors and talk with them to resolve the issue by extending the repayment period or postponing the same by few months. One time settlement wherein the creditors settle for an amount less than the amount due is also an option which should be explored. Many people don't understand that the consequences of not paying bills may be really serious. It may affect one's Credit rating very seriously, which may have long term consequences. In case, the creditors entrust the recovery of debts to collection agents, the position may become really nasty. Sometimes, large over dues may force debtors to initiate bankruptcy proceedings which may undermine one's social and financial standing. Thus, it is obvious that managing one's debt and getting out of debt should always engage one's attention.
Meir Statman, a behavioral economist has said , "Getting out of debt is the financial equivalent of trying to quit smoking." Thus, it is rather difficult, and perhaps remaining indebted has become the habits as well as the necessity of to-day's life style1 Here are some ideas to take you towards getting out of debt:
- Cut the expenses: Increasing income may not be an easy option for most of us, and so we have to cut our expenses.
- In some cases, debt consolidation may result in some savings on net interest outflow. Debt consolidation can reduce the amount of installments to be paid. The additional cash on hand may be used to repay an additional amount of debt.
- Refinancing a mortgage may also result in a reduction in debt. It may have benefits like lower interest rates, monthly repayments may become less, and the length of repayment may become longer.
- Sometimes, one may get some additional assistance by way of social security, medical aid, food coupons, low-income energy aids, etc. You may explore these possibilities if you qualify for them.
- It's advisable to remain in pro-active touch with the creditors. You should talk with them if you find that repayments are making your financial life difficult. If you're facing a temporary problem arising out of unforeseen expenses, explain the position to your creditors, and they may postpone a few installments. For a few months, most of the creditors may not mind receiving smaller repayments than not receiving any amount.
- You should take steps to repair your credit, and improve your credit score.