How to Get Out of Debt?

Hi, I am wondering how to get out of debt in the best way. After losing my job for a few months I got behind on my bills and now I owe several thousand dollars to a few credit card companies. If that is not bad enough I am now behind on my mortgage by a month trying to keep up with the monthly credit card payments. I recently got a new job and I am starting to catch up and trying to figure out how to get out of debt and back to saving money. The problem is that with my current salary I do not see how I can pay more than the minimum payments on my credit cards if I am going to keep up with my mortgage loan and other bills and expenses. Would I be a candidate for debt consolidation or debt settlement? Are there other debt reduction solutions that would help me to get out of debt faster?testtest

I am glad to hear you've been able to get back to work...but I know catching up is a struggle. Here are a couple of suggestions.

First, I would recommend you pay your minimum payments until you can get caught up. I know that's not usually the best strategy, but I'd like to see you focus on getting caught up on your mortgage, make sure you have enough to cover your living expenses, and be able to put aside at least a little liquid savings for emergencies.

Next, if your interest rates are high (and they likely are if you had late payments reported to the credit bureaus for your mortgage), then I recommend you talk with a credit counseling agency. They may be able to help you get lower rates so you'll be able to pay those cards off in a reasonable amount of time. They'll also be able to help you review your budget and offer suggestions. A good one is CCCS of Greater Atlanta. Even though they are based in Atlanta they offer services to consumers all over the US. Their counselors are available 24/7 on the phones or online. Or if you would prefer a local CCCS, you can go to the National Foundation for Credit Counseling to find one in your area.

If you are still scraping by and there is no hope of paying those bills off in about three years or less through credit counseling, then by all means take a look at an option like debt settlement. It will hurt your credit score, but since you've already been behind on your mortgage, your credit score has already taken a hit. You'll find a good chart comparing debt help options at Credit.com.

Again, your first priority should be to focus on getting your spending back on solid ground. Just do the best you can and take it day by day. Let us know if you have further questions.

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When you do a debt consolidation, you just move the debt from one place to another. Debt isn’t the problem here; it’s the symptom of buying what you can’t afford. 88 percent of the time people do debt consolidation, they don’t change the behavior and go right back into debt. The only time I recommend debt consolidation is when you’re facing bankruptcy. You need to get on a budget and get in attack mode, not do this loan. testtest

There's a difference between debt consolidation and a debt management plan. They are not the same thing and while I agree that changing the behavior is key, a debt management plan is a very good way to help consumers get out of overwhelming debt while at the same time saving their credit scores and teaching them how to better manage their finances. It isn't the same as a debt consolidation loan because while you are in a DMP, you cannot take on any more debt so you're not simply moving "the debt from one place to another"... A consumer credit counseling service helps negotiate lower interest rates, stops over limit and late fees, and lowers the monthly payments to something that the consumer can realistically afford. These plans typically take up to 5 years to pay off and by the time the consumer finishes the plan, they're out of debt AND they've saved their credit from bankuptcy in the process. testtest