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Eight Ways to Dig Out of Debt

Gerri Detweiler and Garrett Sutton -- If you're in a debt hole, the obvious advice is to stop digging. But that's often easier said than done. Learn how you can extricate yourself with workable solutions, even if you haven't fallen into the debt hole.

If you're in a debt hole, the obvious advice is to stop digging. But that's often easier said than done. Especially if you've taken a cut in pay or retirement benefits, as many people have over the last couple of years. To help you find a workable solution, here are eight options for getting out of debt:

Using Credit Cards:

Call your card issuers and ask them what rate they will give you to transfer balances from other credit cards. Aim for fixed rates and ask that transfer fees be waived, if possible. Alternatively, use a site like to shop for a new low-rate card to consolidate. For a free article on how to negotiate lower rates, visit's Credit Center.

On the upside: credit cards can carry very low rates.
On the downside: there are a lot of hidden traps in today's credit card deals.

Home Equity Loans or Lines of Credit:

In many cases, homeowners can borrow up to 90-95 percent of the value of their home, minus any first mortgage.

On the upside: these loans typically carry very low interest rates, and the interest you pay is usually tax deductible.
On the downside: you can lose your home if you can't make the payments.

Cash Out Refinance:

Refinance your current mortgage and, if you have equity available, take "cash out" to pay off other debts.

On the upside: interest rates are low and the interest is usually tax-deductible.
On the downside: the cost of refinancing may be 2-4 percent or more of the total loan amount, and higher payments can put your home at risk. Choose the right loan carefully. Many people, for example, would benefit from a lower payment offered by a 3 or 5 year Adjustable Rate Mortgage, but that may not be the best choice for someone who planned to stay put for the next 10 or 20 years.

Traditional Debt Consolidation Loans:

Get an unsecured loan from a local bank or lender to pay off other debts.

On the upside: you'll have one fixed monthly payment each month.
On the downside: it's hard to find these types of loans at low interest rates, especially if you already have a bundle of debt.

Counseling Agencies:

Ask a non-profit counseling agency to help structure repayment plan with unsecured creditors. You make one monthly payment to the counseling agency, which pays participating creditors.

On the upside: they can usually get lower interest rates and you'll usually improve your credit rating if you stick with the program.
On the downside: it's not available for all types of debts.

There has been a lot of publicity about some rogue credit counseling agencies lately, but not all of them are bad. In fact, there are many counseling agencies that have been doing excellent work for many years. But you must choose carefully.

Debt Negotiation or Settlement:

Hire a settlement company to negotiate lump sum settlements on your debts-usually 50 cents on the dollar or less (including fees). The settlement comes from monthly amount you pay to settlement company after you stop paying your creditors.

On the upside: you'll end most creditor harassment, avoid bankruptcy, and usually can be out of debt in 18-24 months.
On the downside: your credit rating will be affected for a couple of years, and some types of loans are not eligible.

Retirement Loans:

Borrow against the money in your 401(k), 403(b) or pension plan, usually up to 50 percent of the balance.

On the upside: these loans are easy to get with no credit check or income qualifications. They offer low interest rates and interest is paid to yourself.
On the downside: you may shortchange your retirement by keeping it out of investments.

If you leave your job you may be required to repay the loan immediately or face stiff penalties and taxes.

Rapid Repayment:

Create a rapid repayment schedule based on the mathematically optimal way to pay your debts. Keep a level monthly payment and pay extra on the highest rate debt first, then work your way down the line.

On the upside: it's inexpensive, and often gives consumers an alternative to debt consolidation. While some consumers will find they need additional help, they will have a clear picture of their debts.

For more information on each of these options including recommended resources, visit the SuccessDNA Credit Center at

Gerri Detweiler, considered one of the country's top credit experts and credit counseling specialists, started her career with a Washington, DC-based non-profit consumer advocacy organization, helping consumers keep up with credit card market changes in the 1980s. At that time she created information that was distributed nationwide, and responded to daily news media interviews. Gerri continues to be a sought-after source on credit topics, authoring and co-authoring several best-selling books on consumer financial topics, including The Ultimate Credit Handbook and Invest In Yourself: Six Secrets to a Rich Life. For more information on how to manage and protect your credit, visit the SuccessDNA Credit Center at

© 2007 Gerri Detweiler

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