Option 1

The Do It Yourself Option

Although we would love to help you through the process of getting out of debt, as a company of integrity we wanted to put it out there straight away, that you can do this all on your own, provided you have the discipline and structure to make a plan and stick to it. All of us suffer from weaknesses, whether that is the newest gadget, car, or vacation, but if you want to get out of debt, then things need to change. The first step is to stop adding to your debt; sit down with your partner and commit to the process of only spending money on essentials. In order to achieve this, you need to work out a weekly budget.

How To Create A Weekly Budget

If you were going to take a road trip from Los Angeles to Nashville, most people would invest in a map or a sat nav system to plan the route and guide them safely to their destination. This is common sense and excellent preparation. The problem with debt is that it creeps up on us, and in the majority of cases, it is due to poor financial habits established over many years. The first thing you need to do is break those bad habits and get a firm understanding of your financial situation. Start by creating a spreadsheet with five columns.

Option 2

Consumer Credit Counseling

If the thought of dealing with all of your creditors fills you with dread, then the next option could be to self-refer yourself to a consumer credit counseling service. The vast majority of these will provide you with between 45 and 60 minutes of counseling, where you can discuss your current financial situation. Most of these services are offered free of charge, so confirm that this is the case before enrolling. Search the internet to find companies who provide this service, and check their reviews before committing. During your consultation, the counselor will decide on the severity of your situation, and if he or she is concerned about it, he might suggest a debt management plan.

In essence, this option is very similar to the do it yourself option, except that the counselor will do the heavy lifting for you. Your counselor will work out how much you can afford to pay every month and then negotiate with your creditors to try and reach an agreement. Because they are not emotionally involved, and they understand the intricacies of the different financial companies, they are also more likely to be successful in agreeing on a repayment plan, although this is never guaranteed. The aim will be to get you lower payments, and this could be achieved by agreeing on a lower interest rate, or longer payment terms. If all, or at least a majority of your creditors agree to the debt management plan, then you would no longer pay them directly, you would pay the debt-counseling agency, who will then distribute the money on your behalf. Remember that the aim of all of these options is to become debt free, which may mean there will be certain hard decisions to be made, as part of the agreement.

In most cases, the agreement will take a minimum of five years to complete, which is a significant time obligation. In addition, be prepared to cancel all your credit cards and commit to not applying for any new credit until you have completed the plan. Although this might sound harsh, the idea is to break bad habits and instill good ones, but unfortunately nearly half of all debtors who sign up for a debt management plan fail to complete it. It is vital that you maintain the desire and determination to become debt free, there will always be temptation, and it will not be easy, but imagine how wonderful life would be if you had no debt in the world.

If you can manage to remain focused and stick to the plan, there are certain advantages. The most significant benefit is that you will be debt free upon completion of the plan, but it is also highly likely that your monthly payments will drop. Many companies will also cancel or waive any penalty charges and most of the fees. And one last benefit is that you will no longer have to deal with the stress and strain of being confronted by your creditors. Many people tell us that this makes such a difference to their lives, as they are no longer scared to answer the phone or open their mailbox.

Option 3

Embark On A Debt Consolidation Program

Debt consolidation is another option available to you, although it is not one that we would personally recommend. Debt consolidation works by basically consolidating your numerous debts into one manageable account. There is a range of benefits to this process, which includes only having the one payment, every month, and the opportunity to get rid of all your higher interest debts. The idea would be to take out a large loan at a comparatively low-interest rate and use that loan to pay off all your other debts. It also gets rid of the debt collectors, threatening phone calls, and the stress of dealing with debt collection agencies.

The problem with this concept is that you think you have made progress, but the reality is that all you have done is move the money from several companies to one provider. The overall amount of debt has remained the same, but your payments have dropped as a result. Many people who follow this method keep their credit cards open, and spend the extra money they have due to reduced payments, and within a few months their original credit card balances have risen once again, but in addition, they now have the consolidation loan to repay.

Thinking things through logically, there is a reason you are in your current financial predicament, and that is mainly down to bad habits. Taking out a consolidation loan is rarely a good option until you have totally kicked your spending habits and got your impulse buys firmly under control. At Pacific National Funding, we aim to set you up for success, which is why in our professional opinion a debt consolidation program is doomed for the majority of people from the second they sign on the dotted line.

Another negative consideration regarding this method is that many people who own their own home will end up getting a homeowner equity line of credit (HELOC), which is a secured loan. A secured loan means that your property is effectively used as collateral against the debt. Although the lower interest rates and payments may seem to be appealing, you are putting your home at risk, should you be unable to make the repayments. In our opinion, this is a risk that is simply not worth taking and one which we would recommend against wherever possible.

Another negative that people tend to forget when signing up for one of these types of loans is that although the payments and interest rates are lower, the total cost is much higher. This is because you will be repaying the debt over between 7 and even 30 years, so cumulatively the cost is much more severe.

Option 4

Debt Settlement

For some reason, debt settlement seems to cause a lot of confusion among many of the people we speak to, and it is essential to understand that it does take a lot of work, hundreds of phone calls and hours and hours of time, but in many cases, the ends do justify the means. The concept of debt settlement is straightforward; in essence, you are trying to negotiate with your creditors to settle the debt. The aim is to clear the debt, and in the process, you end up re-paying a lot less of the debt that you currently owe.

Why Would Your Creditors Agree To Debt Settlement?

The reason why this is often a lengthy process is that your creditors will not want to accept anything less than they are owed. However, if a significant life event has happened, such as an unexpected but severe medical condition, or being made unemployed, your creditors may decide that it is better to get as much money from you as possible, rather than getting none at all. This is where an understanding of the system, strong will, and determination come into play. Be prepared to phone your creditors on a daily basis, offer them a payment that you can afford in full and final payment. Never send your creditors any money unless you have a written confirmation that the payment you make is a full and final payment. Once you have made that payment then ensure that you store all of the agreements including the final payment confirmation securely so that if there is any dispute in the future, you have written proof from the company that the debt was paid. 

Rather than embark on this long and stressful procedure yourself, it may be a good idea to hire an experienced debt settlement company, who will conduct the negotiations on your behalf. Bear in mind that your creditors are not just going to accept your word about a medical issue, or being made unemployed. They will want to see paperwork which demonstrates and verifies the fact that you are experiencing legitimate and severe financial problems.

In many instances, you might have to stop making payments to all of your creditors individually, and save everything you can into a separate savings account. Then at the end of the month, you contact one of your creditors and make them an offer of a full and final payment to clear their debt and close the account. This takes a lot of bravery and goes against everything most of us have been taught about paying our debts on time every time. However, for most people, their situation will be dire, and this option is preferable to that of filing for bankruptcy, which is the next step.

Although this is a better option than bankruptcy, it is important that you understand that any debt settlement program will severely impact your credit score, but if your ultimate aim is to get yourself out of debt, then this may not be a concern for you.

Option 5

Bankruptcy

Not everyone will qualify for bankruptcy, and the process will take some time even if you do qualify. You will have to provide physical proof that you are incapable of repaying your debts. You have to undertake a credit counseling course, from an agency, which has been approved by the U.S Trustee’s office, and this must be completed within 180 days before you file for bankruptcy. Once you have successfully completed this course, you will be issued with a certificate of completion, and this must then be filed no later than 15 days after the date you filed for bankruptcy. You will also be required to work out a repayment plan with the agency and submit a copy of that with your papers.

As you can see, there are many options, and quite a few challenges and complications. You need to decide what is best for you, and if you are worried and concerned about the process, then it is probably a good option to work with a company that has experience and knowledge within the industry.

At Pacific National Funding, we are committed to helping you through the process. All of our staff are carefully chosen because they have the heart of a teacher and will work with you to find the perfect solution for your individual situation. We are confident that we are the best company to work with, and choosing us could be the best financial decision you have ever made.