How To Clear Debt Efficiently

Debt is something no one wants to live with and despite our best attempts at keeping it at bay, it can happen to the best of us. Being injured and unable to work or losing a job can leave honest people without a means to repay their debt, which eventually compounds to become a problem that can scar a credit report for several years. If you are facing debt problems now, there are several options available to you to help you prevent your debt from becoming overwhelming.

For many people, debt consolidation can seem like an affordable way to pay off debt in a reasonable amount of time. Debt consolidating agencies are little more than loan officers who are willing to take a risk on you by offering you the means to pay off your current debtors, but in turn becoming indebted to them. Often this means you trade in your higher monthly payments for a lower monthly payment but a higher interest rate, sometimes around 20%. This could ultimately mean you are paying more in the long run to clear debt you owe.

While many firms that promise to consolidate debt do as promised, they make money by taking a percentage of your payment before passing it along to your creditor. This percentage is dependent on the firm you choose, but the average fee is about 10%. This means $40 of your $400 payment is going to the debt consolidator for the service they provide you. While this may seem like an attractive option to many people, the reality is often your original creditor is willing to work with you if you have not let the account go too far into delinquency. Negotiating lower rates with your creditors can help you clear debt faster while not turning over 10% of all of your payments to a third party organization. 

Debt consolidation is not all bad, as there are many non-profit firms who offer credit counselors who are willing to work with you and give you debt advice that is custom tailored to your situation. This advice is often handy as it helps you choose the best method in paying off your debts and avoiding taking any more hits on your credit history. Most advisors recommend you stay away from offers that are too good to be true and balance transfer traps, as these can have a negative impact on your credit as well.

Ramit Seethi is a prominent businessman who operates PBWiki and wrote a New York Times' bestseller last year entitled I Will Teach You To Be Rich. In the book, Ramit explains why many people find themselves in debt and what you should be doing to improve your financial situation according to your age bracket. He also offers a no-nonsense approach to how you can get your financial life back on track and clear debt without paying fees to consolidation companies, or settling for high interest rates that eat through your money instead of helping you build credit.