What is the Meaning of Debt-Free?
A debt-free life does not necessarily mean no monthly bills. You need to distinguish between good and bad debt first of all. Good debt is that which is backed by assets of value. A home mortgage is good debt because your home appreciates as your loan on it reduces. Bad debt is that which has been incurred for purchases that have not long-term value. High credit balances which carry over from month to month are examples of bad debt. Being debt free means first eliminating the bad debt. Once that is accomplished, many people choose to eliminate the good debt as well, and this is just icing on the cake. There are some secrets to a debt free happy life that anyone can learn.
Eliminate the Bad Debt
No one can be totally happy if there is revolving debt being carried over from month to month at high interest rates. The easiest strategy is to make the minimum payment and ignore the amount being charged in interest, succumbing to a lifetime of debt. And, if debt becomes overwhelming, even minimum payments can become difficult. If this is the case, the debtor must consider options for reduction and elimination of debt
, not just to get creditors satisfied but, more important, to begin to have a happier life.
First, you must do whatever is necessary to get rid of the debt, even if the course of action damages your credit rating in the short-term. If the ability to make double payments on at least one of your bills each month is not present, you probably will not get out of debt unless you take more drastic action. Your other options are as follows:
- Consolidate your debt by getting a larger loan to pay off the current debt. You will get one lower payment and can then begin to develop a savings and investment plan.
- Consider debt settlement. This involves getting creditors to agree to lower interest and lower total debt amount. Settlement cannot occur unless you are 60+ days behind in payments, and the creditor has a fear that he may get nothing without coming to the table. A lot of debtors complete these negotiations themselves, but it requires skills and time, and debt settlement professionals are available to handle this process.
- Home equity loans and cash out refinances are available to a homeowner who has enough equity. These are great options because the interest rates are traditionally lower than other consolidation loans.
- Bankruptcy is a drastic option but can give the debtor a fresh start.
Any options selected will not work unless the consumer has the commitment and the ability to change spending behaviors and to place extra cash into savings and investments that will ensure long-term financial security.
Debt Settlement by Professionals
If you do not have the time and skills to do this yourself, you need to employ someone who does. Debt settlers will charge fees, and check these carefully, because the market is very competitive. The settlement professional can negotiate for you, has the contacts at major creditors, and can probably get through the process far more effectively than you.