Legal Debt Cures

This article provides an overview of three legal debt cures that can be effective in eliminating large or small amounts of debt: family budgets, debt consolidation and debt settlement.

Family Budget

Getting out of debt can be a difficult thing to do, especially in today's world. It takes discipline and planning and sometimes a little extra help from someone else. Before considering anything as drastic as bankruptcy, it may be necessary to consider one of these sure-fire alternatives to turning the family finances around.

Starting a family budget is like starting a diet. On a diet, you must burn more calories than you consume. In a budget, more money must be coming in than is being spent. It is absolutely essential to gather your financial documents and sit down to see what your monthly expenditures are so that you can begin to put excess cash toward your debt. Several companies offer products and services that include a free budget analysis. It may be advisable to have a financial professional provide your family with a free financial analysis. One common method for eliminating debt that is often recommended by professionals is "debt stacking," or a "debt snowball." This method involves paying the minimum amount on all debts except one. The remaining account, which is usually the highest in interest, is where excess funds are funneled until the account is paid off. At that point, rather than pocket the excess money, it should be "stacked" onto the payment of the next highest account until it is paid off. This trend continues until all debts are paid off. Debt counselor and radio talk show host Dave Ramsey suggests the opposite approach of starting with the smallest account. He believes this provides necessary psychological motivation that is often needed to get the process started. In any case, it is a simple yet effective way to get rid of debt.

Debt Consolidation

Sometimes it can be best to put all existing debt into one account and make that the focus. Consolidating debt usually involves taking out one large loan to account for all of the existing debt or using the remaining credit on an existing account to put all of the debt in one place. This allows the debtor to focus on and pay off one account. In order to be effective, one must take care to pay over and above the required minimum payment in order to see the principal shrink substantially and quickly.

Debt Settlement

Sometimes debt can become so overwhelming that more drastic measures are needed. Debt settlement is one final option that can be explored prior to bankruptcy. Some companies offer debt settlement services for those unwilling or unable to do it themselves. Debt settlement involves a drastic change of thinking and action in which the debtor simply stops paying on their accounts while still setting aside the money they would have normally applied toward the account. This will cause the issuing creditor to close the account, bring unwanted collection calls and threats, and hurt one's credit rating for the short term. The creditor will eventually settle the account for less than the principal amount, but the amount varies according to the creditor, size of the account and negotiating skills of the debtor or company negotiating on the debtor's behalf. It should be noted that debt settlement can be a long and difficult process and should not be entered into lightly.