Debt is something which affects almost all of us at some point in our lives. It’s like a pool of quick sand – easy to get into, hard to get out of, sucks you further in the more you struggle, and you end up completely buried if you ignore it. The increasing national debt has given rise to countless debt advisory companies, some of whom promise to have your debts written off or decreased due to ‘loopholes’ in the law, secret debt cures, or an understanding with particular creditors. You remember the Obama credit card debt relief program, don’t you?
These companies may help in some cases, but you usually have to have a certain level of debt before they will take you on. They also charge a fee, which may not be the ideal solution for someone who has to watch every penny.
So what can you do to ease your debts without filling someone else’s pockets?
Obviously the first thing is to know how much you owe, and to whom. I’ll skip the part about getting your free credit report, listing your income and expenses, etc. And I’ll focus on what you can actively do to reduce the amount of debt you’re in.
Ask. You’ll need to contact your creditors to see how much you owe, but while you’re on the phone, why not ask them if there’s anything they can do for you? If you’ve got a reasonably good history with them and you’re honest from the start about struggling, they may offer to reduce the interest or renegotiate a loan to a longer term. The latter won’t reduce the amount of debt but it will reduce the amount you pay each month, leaving you with more to pay off other things. Just be careful that you don’t end up owing more money through your efforts.
Make More Money. This won’t be possible for everyone, but have a think about how much spare time you have (if any) and consider filling some of it up with a part-time job. It probably won’t pay much, but you’ll have more spare income to put towards your debt reduction fund. Editor’s note: Since this isn’t actually a free way to get debt help, I’ll suggest you go visit DaveRamsey.com and listen to his free shows. Dave tells it like it is and most of his content is freely available. If you’re not motivated to get out of debt by listening to him, then I don’t know if you can find motivation.
Credit Cards. With smaller debt, it may be possible to transfer the balance onto a credit card. The best 0% balance transfer credit cards typically charge no interest for several months, so paying off a debt with a credit card will effectively do away with paying interest. It’s best to only do this if you know you can commit to paying off at least the minimum balance on a card each month, otherwise the interest-free period will end early. Try a credit card comparison to see if this method will help you.
Remortgage. If you’re a homeowner with a lot of equity in your home, a remortgage could free up a sizable amount. Your mortgage payments will increase, but you may be able to negotiate a lower rate or a fixed low rate period which will mean you pay less per month than your debts currently cost. Editor’s Note: In most cases, remortgaging, just for the sake of having cash for debt reduction, is a poor financial move. You are taking an unsecured debt and converting it to a secured debt. You are effectively putting your home at risk because of something you purchased with a credit card. Instead of doing this, go visit NFCC.org, the original and only non-profit credit counseling agency. They can put you in touch with a legitimate counseling agency, which might cost you some money, but it won’t be a scam.
Proving the Debt. Many people don’t know about this legal loophole: if your debt has been passed onto a debt collection company, ask them to prove the debt is owed and that they are entitled to collect it. They need to show:
- What the money you owe is for
- How this has been calculated
- A credit agreement, signed and dated by you, for the debt and the amount they say you agreed to pay
- The original creditor whom they bought the debt from
- Their collection license to prove they can collect in your state, along with license numbers and Registered Agent
If they fail to provide this evidence, and you find they have issued a mark against your credit report, they can be reported for fraud and the mark removed. If they cannot provide the evidence, then the debt is legally unenforceable and you cannot be pursued for the money. Editor’s Note: I do not doubt that this is something you can do. But I don’t have any stats to support how effective it is. I would advise you to dispute any debt on your credit report that is not yours with the credit bureaus. However, if these actually are your debts, then just pay them off and don’t try to scam the system.
Statute of Limitations. In layman’s terms, this is an enactment in the law which states there is a legal time limit for a creditor to collect a defaulted debt. Although the time limit varies from state to state (and depends also on the type of debt and contract), the principle remains the same: if there has been no activity – payment or deals made – on the account for the length of the statute of limitations, then the debt is no longer legally enforceable, and if the company pursues you for the debt once the statute has passed, you don’t have to pay.
If you are able to make use of either of the last two points, make sure you get everything in writing, or record all phone calls. You will then have evidence of any harassment should you need to go to court (if a collection agency harasses you over a debt then you can sue them). Editor’s note: Sound like a hassle? It probably is. Just pay off your debt and move on with your life.
With all these options, you need to look at all angles to see if the solution will work for your situation. For example, remortgaging to pay off a relatively small debt would end up costing you more, and taking out a balance transfer credit card may not work if you already have a poor credit score.