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Say good riddance to debt

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By Andrew Housser

When you factor in mortgages, car loans, student loans and credit cards, the average American is more than $225,000 in debt, according to a 2013 report. Although bankruptcy filings declined slightly in 2013, it is still all too easy to get behind in payments or default altogether. Digging out of debt can be a difficult journey, yet it is possible. If you find yourself struggling with debt, consider these debt relief options.

1.      Debt consolidation. A personal loan from a bank or a home equity loan from a mortgage company can be used to pay off unsecured debt such as credit cards, medical expenses and utility bills (basically, expenses that are not secured by a tangible asset such as a home or car). Consolidation leaves you with just one payment, ideally at a lower interest rate. This works best for those who are able to pay bills but find it difficult to juggle multiple payments and due dates.

2.      Debt negotiation (settlement). Also known as debt settlement, debt negotiation involves paying a reputable company a fee to work on your behalf, negotiating directly with creditors to resolve debt balances on unsecured debt. Debt negotiation is best suited for consumers in serious debt, and who cannot make minimal monthly payments.

3.      Bankruptcy. Chapter 7 bankruptcy liquidates or sells off assets like a house or car to pay back creditors. This eliminates most debt, except for child support, alimony and student loans. With a Chapter 7 filing, you must pass a “means test” to prove you cannot pay off debts yourself. Filers with higher incomes may qualify for Chapter 13 bankruptcy or a reorganization of debt. This involves paying back debt on a repayment plan that can take up to five years. Chapter 13 reorganization makes it easier to keep your house, car or other assets. Remember, bankruptcy filings can negatively affect your credit profile for 7 to 10 years.

4.      Credit counseling. Consumer credit counseling agencies maintain pre-arranged agreements with credit card companies to lower interest rates on a consumer’s existing debt to a creditor-issued concession rate. Often, agencies enroll clients in a debt management plan (DMP), where the agency collects a monthly fee from consumers, as well as revenue from the credit card company. The result is reduced monthly payments (not reduced principal due). Monthly fees often are $10-15 per month for each enrolled debt account. The standard length of a DMP is five years. Accounts included in a credit counseling plan may be noted on your credit report as “not being paid as agreed.”

5.      Mortgage refinance. Cash-out refinancing enables you to refinance your mortgage for more than you currently owe, and use the excess funds to pay off credit cards or other debt. Because mortgages tend to have significantly lower interest rates than credit cards, your total monthly payment obligation should go down. However, you could end up paying more in total interest during the life of the home loan, as a mortgage is typically amortized over a 30-year period. On the plus side, mortgage interest is tax-deductible. A significant drawback, however, is that you could lose your home if you are unable to make loan payments.

If you are behind on bills, you are not alone. Nearly 15 percent of consumers are dealing with debt collection agencies at any given time. A reputable consumer credit advocate firm can help you determine the best way to manage high levels of debt and respond to creditors. When selecting a company, protect yourself by looking for a company that is an accredited member of the American Fair Credit Council.

Andrew Housser is a co-founder and CEO of, a free one-stop online portal where consumers can educate themselves about personal finance issues and compare financial products and services. He also is co-CEO of Freedom Financial Network, LLC providing comprehensive consumer credit advocacy and debt relief services. Housser holds a Master of Business Administration degree from Stanford University and Bachelor of Arts degree from Dartmouth College.
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