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Short and Long Term Debt Relief Options
Many Americans are seeking help with bills, whether to cover a temporary cash shortage or for a long term recovery solution. Other than asking family and friends for money, here are a few short and long term debt relief tips and options for good and bad credit people.
Payday Loan: Because of fees, this option should only be used to cover a short term cash shortage. The advantage of this option is that most anyone can qualify, including those considered to be a high risk by lenders of other types of unsecured loans. Again, this should only be used as a temporary solution, for example to cover an unexpected or emergency expense, or to prevent paying a late fee or a bounced check fee. Although the fee of a payday loan may equal; or exceed, a late, overlimit or bounced check fee, it can save you from having your credit damaged if you didn't pay a bill on time. Just remember to pay back the payday loan upon your next payday.
Paycheck Advance: See if your company offers its own type of payday/paycheck advance, or will advance part of your paycheck to you so you can cover expenses until payday. If your company offers such a benefit, they're not likely to check your credit rating so this option is also for troubled credit people.
Bank or Credit Union: Your branch bank or credit union may offer an unsecured signature loan, particularly if you are a good customer of many years and have some equity like an auto or a savings account. This option is more suited for fair to good credit people.
Liquidate: To liquidate is to turn assets into cash. Have a yard sale or place your items; particularly large or higher-priced items, up for bid at an online auction. At yard sales, buyers are trying to lower your price, but with an auction you have people placing competing bids. Anyone can liquidate despite credit ratings.
Credit Card Charge: This is a short term option for anyone who has; or can qualify for, an unsecured credit card. You could use the card as an interest free 30 day loan if you payback the charge(s) before the grace period ends. Or if you have really good credit, you may qualify for a 6 month 0 interest introductory period card.
Credit Card Cash Advance: This option is open to anyone who has a credit card that offers cash advances. It is also a costly; and desperate, option. The interest charges are higher for credit card cash advances than regular credit card purchases. So, first you should consider charging the debt to your card instead of getting the credit card cash advance. If you can payback the advance by your next payday, it may be best to get a payday advance instead.
Auto Refinancing: This option is available to people of most credit ratings, who have an auto with adequate equity (more value than any amounts remaining owed). A good benefit of this option is that it has less overall interest than payday loans and credit cards; including credit card cash advances. Be aware; however, that auto refinancing loans have higher interest rates than purchase loans. If you currently still owe a balance on your auto, the new refinance interest rate will be significantly higher than the original loan rate.
Car Title Loans: Title loans are similar to payday loans and have short, typically one-month term payback periods. As with auto refinancing, this option is available to most anyone who owns a car regardless of credit rating. The danger is that if you don't repay the loan timely, you'll roll-over loan and build up even more fees that could exceed the original title loan amount. Another drawback is that if you fail to pay, the auto title loan lender can take your car.
Downgrade: If you have a high cost auto, see if you could sell it and get enough to payoff any remaining balance and have enough left over to get a lower cost car. This option requires you not only to have an auto with adequate equity, but to get a low interest rate (should you need to finance part of the replacement car's cost) you'll need a better than bad credit score.
Debt Consolidation Loan: If you've got a home with equity and at least fair credit, you could use your home as your own personal bank. Consider borrowing just enough to payoff your highest interest charging accounts to get your back onto your feet so you can handle the remaining bills, plus payback the loan or to meet the new higher mortgage payments.
401K and IRA Withdrawals: The drawback here is that you're robbing yourself, you'll also have penalties and taxes to pay plus you lose tax-deferred returns that money could have earned. This option is no respector of persons, meaning anyone regardless of credit can withdraw from their 401K and IRA. If robbing your retirement is your only option, take only the bare minimum necessary.
Retirement Plan Loans: Although this option is far from risk-free, they're better than outright withdrawals. Most employer plans, including 401(k)s and 403(b)s, allow you to borrow up to half your balance or $50,000, whichever is less. Typically, you pay the money back over five years. Keep in mind that if you lose your job and can't pay back the loan, it becomes a withdrawal with all the taxes, penalties and lost returns you were trying to avoid.
Need more suggestions? Here are non-loan options to recover from debt:
Track Expenses and Build a Better Personal Budget:
Credit Counselor Debt Consolidation: Legitimate credit counselors have debt management plans that reduce or eliminate the interest rates on your credit card debt. You can find one by visiting the Web site of the National Foundation for Credit Counseling. (Credit counseling may have implications for your credit rating -- read "The consumer's guide to credit counseling" for details -- but the effect is far less than if you try to settle your debts.)
Negotiate Lower Interest Rates: If your credit's good, you may be able to negotiate lower interest rates on your debt. (See "Get a better deal . . . with a threat" for techniques.) Then you can tackle your bills one at a time, starting with the highest-rate debt or the credit card that's closest to its limit, while paying the minimums on your other debt. Once this high-priority debt is paid off, make the same-size payment to the next-highest-priority debt. Continue until you're debt-free.
Debt Settlement: Debt settlement companies promise that you can get out of your debts for pennies on the dollar. Typically, these outfits demand that you stop paying your creditors and instead send the money to them. After a few months, the debt-settlement company promises to open negotiations with your lenders and use the money you've sent to pay them. The idea is that after a few months of not getting paid, your creditors will agree to a fraction of what they're owed. Of course, your credit will be trashed at this point, you'll have paid fat fees to the debt-settlement company, and you may be facing lawsuits from your lenders. That's if you're lucky. If you're not, you'll risk all this, and the debt-settlement company will disappear with your money. If you need more details, read "Debt settlement: A costly escape."
File Bankruptcy. If you can't pay your debts, you may be better off getting a fresh start through bankruptcy. Your credit rating may recover more quickly, and you'll be able to keep the cash you would have otherwise sent to the debt-settlement company. Consult an experienced bankruptcy attorney who can evaluate your situation and discuss your options. MSN Money's bankruptcy guide offers resources, information and tips.
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