Debt Relief 101 Credit Cards, Payday Loans, and More

  • Are you stressing out over debt?
  • Do you wonder how you can get debt for your credit cards?
  • Do you feel that there is no way out?
  • Have you made the mistake of getting a payday loan and you know wonder how you are going to be able to get relief from

    Debt Relief Vs. Bankruptcy

    Did You Fall Into the Payday Loan Trap?

    these legalized loan sharks?

  • Are you wondering how you can eliminate or pay off what seems like overwhelming debt?

If you answer yes,  to any of the above questions, you will need to get your debt under control. This article will do just that by steering you in the right direction.

There are numerous debt payment strategies, hacks, and tricks.   So, if you ask ten people advice on how to get control of your debt, you’ll get ten different answers. And each of those ten different answers may be right.  However, every possible solution for paying off debt may not be the best fit for you. As a result, I will examine the seven most common methods for you to either pay off or eliminate all of your debts (I.E., Medical, Paydayloans, Credit Cards, Personal Loans, etc.)

Not Recommended For Quick Cash-Blogging, Website, Ecommerce, Dropshipping etc.- With blogging, setting up a website, or an online store, you can make a tremendous amount of money. It is not out of bounds that you can make six figures or more per month with your blog or eCommerce site. However, it takes time and effort for you to earn money on the Internet. So, if cash is needed quickly, I would not depend on blogging. 

The following debt relief or debt payment strategies are addressed below:

  1. Debt Negotiation
  2. Earn More Money
  3. Debt Consolidation
  4. Bankruptcy
  5. Paying Off your Debt
  6. Debt Management

This guide will examine the best legal and quickest ways for you to eliminate your debts; so, you can start fresh. These solutions that I am giving you are all legitimate, and I feel that all of the above debt relief solutions are moral.  However, I do realize and respect that you may have a different moral code.  As a result, for the most part, morality will not be factored in this guide.

For example, you may feel that bankruptcy or debt negotiation isn’t moral because the creditor deserves to get what they are fully due. However, bankruptcy and debt negotiation, which results in creditors getting less than they contracted for, could be the best solution to eliminate your debt the quickest and get you on track for financial recovery.  As a result, if you don’t feel that bankruptcy or another form of debt relief is acceptable, you can then try some of the other listed methods.

1.  Debt Negotiation

Negotiating with your creditors for a lower balance or monthly payment might be a solution to your debt.  However, debt negotiations’ chance of success depends mostly depends upon the following:

  • Are You Behind On Making Payment Or Are You On Time?  Negotiating directly or through a private company may be a good fit. If you are not behind or at least not in danger of defaulting on any Credit Cards or loan.  So, you should communicate with your creditor as soon as you can tell them, preferably beforehand, if anything may soon happen or is currently occurring that could cause you to be late on your payments.
  • Are You Being Sued?  A garnishment (where a court orders your employer to give the creditor a percentage of your paycheck each month) may be ordered against you if you lose a lawsuit, and it can result in extreme financial hardship. For example, in Nevada, 25% of your paycheck can be taken.  As a consequence, the loss of money caused by the garnishment may make result in you not being able to pay the creditors that did negotiate with you.
  • Have You Recently Received a Windfall or Do You Have a Substantial Source Of Money? (I.E., Personal Injury Award, Inheritance, etc.) If you have a recent windfall or have saved up some money, you could likely have a better chance of getting your debt balance lower because you have something to offer the creditors.  For example, a creditor may feel that if you give him $1,000 to settle a $2,000 balance is better than potentially receiving nothing if you file for bankruptcy. On the other hand, if you can’t offer the creditor a settlement offer, they have little reason to negotiate.

Pros

  • Lower Monthly Payments-You may be able to negotiate lower payments with the creditor. However, even if your lower payments are permanent, I would still recommend that after you are more financially sound, that you continue paying your old, higher,  minimum monthly, credit card payment
  • You’ll Pay Less-You might be able to offer the creditor to pay less than what you owe.  As stated earlier, this strategy will likely only work. If you have a lump sum amount of money on hand. For example, you owe $5,000, and you offer them $3,000 to settle your debt.

Cons

  • You May End Up Paying More- If your creditor allows you to pay a lower monthly payment, you will likely end up spending more in the long run. So, I would advise you to start paying the original minium payment (if not more) when you are able.
  • No Bargaining Power-First of all, your creditor does not have to work with you. So, negotiation may not even be an option. Additionally, unless you have a lump sum amount of money, the creditor will most likely not give you a reduction in your debt.
  • Too Many Creditors-When you have fewer creditors, negotiation will more likely be successful in helping you with all of your debt problems. The reason for this is that it is easier to get fewer creditors to work with you and potentially accept a lower payment from you or even allow you to pay a lesser credit balance.

For example, you might be able to afford a reduced $100 minimum payment from creditor “A.” However, creditor “B” not working with you or suing you, could result in you being unable to make payments to creditor A. As a result, you may be forced to file for bankruptcy or try another form of debt relief.

Recommendations

I learned of the limitations of negotiating with creditors through my hundreds of bankruptcy consultation. What often happens is that a debtor may have worked out a plan with a  single debtor, which results in them making progress toward paying off that debt. However, an old obligation comes back to haunt them, or certain creditors may refuse to negotiate.   When this happens, the debtor’s plans of directly negotiating with creditors will likely fail as they are then unable to even pay on the creditor where there was a successful negotiation.

2. Earn More Money

 Of course, earning more money is a way for you to get your debt, woes, under control. However, it should go without saying that making extra money is easier said than done.

This is only  a quick introduction, and I will expand and also add on to these various methods for earning extra money on later dates.

I am only concentrating on quick ways for you to get extra cash. As a result, I will only briefly touch upon the so-called “side jobs” where it can take weeks, months, or even years for you to get a return on your investment of both time and money. Also, as I am assuming that you know about how to get a traditional job, I will not address traditional, local jobs where you are required to attend a set time and place. 

Now, I will address the following ways for earning extra money:  

Get A Side Job

The Gig Economy, which classifies workers as independent contractors, has made it increasingly easy for all workers to get a side job. Uber, Lyft, and Postmates are the primary examples of these “Gig” types of jobs.

In theory, being an independent contractor is perfect because you’re able to choose your hours; so, you do not have to worry about finding a second job that will work with your full-time job commitments.

    However, working during peak times is necessary if you want to give you the best chance of making the most money. Also, independent contractors have to pay for their work supplies, and if you are driving for Uber or Lyft, you have to pay for your gas, and you are likely to pay more for your auto insurance. Additionally, independent contractors have no benefits, such as health insurance. 

My thoughts concerning Uber/Lyft are formed by me talking to debtors that are experiencing extreme hardship, and they often work for Uber/Lyft as a last resort. As a result, many times, the Uber/Lyft drivers were just too far behind to get caught up on their debts. However, I have also heard of these complaints through other means and also through research. 

 The following are the most common complaints that I have heard from Uber/Lyft drivers in the Las Vegas area.  So, if you don’t live in Las Vegas, do your research; but, I would not be surprised if drivers from other cities complain about the following also. 

  1. Reduced Compensation- Through my consultations and also research, I have heard that Uber is paying its contractors less. 
  2. Increased Competition- Uber does not have a set cap on the number of drivers authorized to work in an area.  I am not sure about Lyft.  However, many customers use both Uber/Lyft.  So, it is not a brash assumption that increased competition in Uber would also negatively affect Lyft drivers. As a result, Uber/Lyft can become saturated in many areas (I’ve heard this complaint numerous times in Vegas), which means it will be harder for you to earn money.    

Sell  Your Plasma

Don’t laugh, assuming you are able, selling plasma is an easy way for you to make $200+ or more monthly income. You won’t get rich doing it. But, an extra $240 a month will help speed up your debt repayment.  Also, donating plasma is easy as all you have to do is sit, and your chosen plasma donation center will do the rest. As a bonus, by selling your plasma, you could potentially save a life.

So, if you are not afraid of needles, look up the nearest plasma donation center and see if you qualify.

Sell On eBay Or Etsy

Selling on eBay or Etsy is an excellent way to earn money, relatively fast. With eBay, you could make a hundred dollars or more by just raiding your closet and selling unused clothes, or you can sell that ugly but valuable vase that you regretted buying. eBay, though, is competitive. So, to best succeed, you try to offer something unique and fashionable.  

Etsy allows you to sell hand-made products online through an online store. You can sell a wide range of products through printables, digitals, antiques, and also manufactured products that are designed by you but made by others. For example, you can create a t-shirt and have the T-shirt printed by a vendor on an as-needed basis, which is called print on demand.  So, if you are into arts and crafts, Etsy is a great way fo you to make money with your hobby.  

Recommendations

 Because of the lower learning curve between Etsy and eBay, I would recommend eBay for quick cash. To become successful in Etsy, you have to need to build a store though SEO, online networking, etc., which can take a while. On the other hand, eBay has a lower learning curve, and you only have to worry about a single product vs. an entire store in Etsy. 

3.  Debt Consolidation

With debt consolidation, you take out another loan and use that money to pay off other debts, such as credit cards, payday loans, and personal loans.  Generally, debt consolidation has the following advantages and disadvantages.

Pros

  • Simplification-Instead of making multiple credit card payments, you only have to remember to pay your debt consolidation loan.
  • Lower Payments or Interest-You should only accept a debt consolidation loan that has a lower interest rate than your credit cards or other debts that you are consolidating.  Therefore, debt consolidation might result in you paying less.
  • Improved Credit Score-Paying off your credit cards can result in your credit score increasing. However, if this occurs, do not make the mistake of getting new, unneeded credit cards because of your credit score increasing.

Cons

  • Bad Habits Returning-Unless you cancel your credit cards, you will be tempted to use the old credit cards that you paid off via the debt consolidation loan. Therefore, if you are not disciplined enough, you could have both the debt consolidation loan and new credit card loans.
  • Not Feasible– If you are spending more than you are earning,  and you can’t either drastically reduce your spending or get a side job, debt consolidation may not work.  This situation will most likely happen if your car or mortgage payments are too high.

Types of Debt Consolidations

There are several forms of consolidations, which may or may not be useful for your particular situation. Below are the primary types of debt consolidation, which I would recommend.

Credit Card Balance Transfer

Transfer balance occurs when you transfer a balance of a credit card onto another credit card. A balance transfer has several advantages, which are summarized below.

Pros

  • Low Introductory Interest Rate- Depending upon your credit score, you will likely have a low or even 0% interest rate. However, this rate will only be temporary. But, you can have substantial savings if you can pay off all or the vast majority of the credit card during the introductory interest period.

Cons

  •  High-Interest Rate-After, the introductory interest rate period has ended, you may have to pay an even higher rate of interest than if you were to have stayed with your old credit card. As a result, the credit balance transfer could cost more for you if you don’t pay off your debt before the introductory interest rate has finished.
  • Credit Score– Your credit score may lower if the balance transfer results in you using more than 30% of the credit limits on your new credit card.
  • Eligibility-If your credit score is low, it can be impossible for you to get a credit card that is suitable for a transfer balance. I.E., The only cards that you can get will have high interest.

 401K loan

A 401k loan allows you to take money out of your 401K. You repay this loan, with interest, by scheduling automatic payroll deductions. Assuming you have a 401k, this can be a good option.

Pros

  • Interest Rate-The The interest rare for the 401k will almost always be lower than the interest on your credit cards or a personal loan.
  • Convenience-Automatic paycheck deductions are used to pay off your 401k loan.
  • No Application or Credit Score Requirements-Since it’s your money, A 401k loan does not require you to have a particular credit score.

Cons

  • Retirement Savings Are Partially or Permanently Stalled-For the duration of the 401k loan; you will not be able to earn any interest in the money that was borrowed.
  • You Are Fired-You are required to pay the entire balance on your 401k loan within 60 days, or you will be subject to tax penalties.
  • Tax Penalties-If you don’t pay off your 401k loan on time, you’ll be subject to substantial tax penalties.

Home Equity Loans

Assuming you have either paid off your mortgage or have substantial equity, a home equity loan can be a good option.

Pros

  • Interest Rate: Since your home secures the loan, your interest rate is lower.
  • Tax Savings: The interest rate on the equity loan may be a tax deduction.
  • Longer Time To Pay Off Your Loan: This means that that your loan payment will be lower than your private loan or a debt consolidation loan.

 Cons

  • House Value: You may have little equity, no equity, or your house may even be underwater, which will results in a home equity loan not being available or worthwhile.
  • Foreclosure: Your house can be foreclosed upon if you miss payments.
  • Costs: Closing costs and other miscellaneous fees may occur. So, an equity loan may not be worthwhile if your debt that you want to consolidate is low.

 Unsecured Personal Loan

Lower interest unsecured personal loans are primarily done through banks or credit unions.  The Pros and Cons are detailed below:

Pros

  • Interest Rate Is Most Likely Set- Unlike a credit card balance transfer, a personal loan will likely have a fixed interest rate.
  • No Collateral Is Needed-As a result, anyone with a job and acceptable credit score can potentially be able to get a personal loan.
  • Credit Score Improvement-Your credit score may be improved because a personal loan decreases your overall credit card balances, which will result in your credit score improving.

Cons

  • Higher Interest Rate- Your interest rate will be higher because collateral is not needed. As a result, a high interest, a personal loan may ONLY be feasible if you have multiple, high interest, payday loans.
  • Credit Score Dependent- To get an unsecured personal loan that has, at least, an acceptable interest rate, you will need to have a decent credit rating.
  • Higher Payments-Since your loan is not secured, you will likely be required to pay your loan quicker than a secured loan.

Recommendations

Debt consolidation, if done correctly, is an excellent method of paying off your debts.  However, for debt consolidation to work, you must have the discipline not to run up your newly paid-off credit card.  Although our past actions do not guarantee our future, if you have always financially irresponsible, I would think twice before debt consolidation.

4.  Bankruptcy

An in-depth analysis of bankruptcy can be accessed by clicking here. So, I will only briefly review bankruptcy.  So, if you have more questions, please click the above link.

Bankruptcy allows you (depending upon if you qualify and what type of debt you have) to eliminate most debts in as little as three months. Therefore, it is a powerful tool for debt relief. However, a bankruptcy (which will negatively affect your credit score)  stays on your credit report for ten years. So, you should only file after consulting with an experienced lawyer.

When Should You Or When You Should Not File?

When debtors ask me whether or not they should declare, I first ask them: “How long do you think it will take you to pay off “X” amount of debt. Consequently, if they can pay off their debt in a reasonable period, bankruptcy may not be advisable.

However, if most of your debt can be discharged (eliminated), your credit score and overall financial health may recover more quickly filing for bankruptcy.

Primary Reasons For Not Declaring:

  • Your Debt’s Small– There is no minimum debt requirement for filing. However, to avoid the credit hit, I would not file for bankruptcy if you can reasonably pay off all of your debt in a reasonable period.
  • The type of Debt-Bankruptcy does not work for certain debts. I.E., School loans, criminal restitution, and most government penalties. Therefore, if your debt mostly consists of the above, declaring for bankruptcy might not be the wisest choice.
  • Recent Debt Within 90 Days– It is presumed that if you spend $600 in credit cards or other forms of debt within 90 days of filing that you are abusing the system, which means that you may not be able to eliminate that debt. The reasoning behind this is that the bankruptcy code doesn’t want debtor’s going on buying sprees right before they declare. As a result, depending upon the amount of debt acquired within 90-days, you may wish to delay filing for at least 90 days.

Recommendations

These are a few of the main reasons why filing may not be an ideal solution. However, it can be the quickest way for you to get your “fresh start.”  That is why, if you are struggling with debt, you need to take advantage of a free consultation with an experienced bankruptcy attorney.

For an in-depth report on bankruptcy and its pros and cons, please click here.

5.  Payoff Your Debts

Paying off your debts is likely the best option if you can pay off your debts in a reasonable amount of time, and you do not have any high-dollar debts that you defaulted upon. The following is a sample of strategies for paying off your entire debt.  This is just an introduction, and I will expand, and, as I become aware and have time, I will tell you about other ways to tackle your debt head-on. Here are a few recommended debt repayment strategies.

Snowball Debt Relief

What is the SnowBall Debt Relief Method?

The Snow Ball, debt payment strategy or hack, was made popular by personal finance guru, Dave Ramsey. A snowball represents debt rolling downhill, building up momentum, and adding additional snow (“debt”) as it rolls downhill.  It is simple to implement. However, it only works if you have multiple credit cards or personal loans.

Steps

  1. Small Debt First- First, concentrate on paying off your smallest debt first while making the minimum required payments on your other debts.
  2. Roll The Smallest Debt Into The First-After paying off your smallest debt, you then add that money that you were paying on your newly paid off debt to your next smallest debt.
  3. Rinse, Repeat-Repeat the above until you pay off all of your debts.

Avalanche

The Avalanche strategy for debt relief is the traditional method for paying off debts where you are paying off your highest interest debt first. Also, in theory, it is the best debt relief strategy, as it allows you to pay off your debts quicker. However, the drawbacks of the Avalanche is that, unless your lowest amount of debt is also your highest interest loan, it will take longer for you to see the results of paying off your debts, which can be discouraging.

Recommendations

I recommended the Snowball strategy for most debtors. Granted, your debts may be paid off quicker if you pay off your higher-interest loans first. However, if you pay off your high-interest debt first, assuming those debts are not your smallest amount, it will take a while for you to see any results.

The Snowball method, on the other hand, is psychologically satisfying because you will see the benefits of eliminating debt quicker, which means that you will be more likely to continue paying back all of your debts until you are debt-free. Therefore, unless you have had proven results using the Avalanche method, I recommend the Snowball Strategy first, and then (if you wish) after paying off a smaller debt, you could later try using the Avalanche.

Pay Day Loan or Other High Interest Debt Exception-If you have high-interest loans, like payday loans or other high-interest credit cards, personal, non-payday, type of loan that often have interest rates above 20 %, I would not recommend the Snowball Debt Payment method, and instead, you will need to concentrate on those higher interest loans first.

6.  Debt Management Plan

Debt Management plan combines all of your credit card and other loan payments into a single payment, which can result in a lower interest rate and potentially a clear path, in three to five years, for you to pay off all of your debts.  It requires you to get rid of your credit cards, which for some out of control, spenders is not a bad idea.

Debt Management is quite similar to a Chapter 13 bankruptcy with the advantage of you not having to file for bankruptcy. However, debt management also doesn’t provide you with the protection of the federal bankruptcy court.
This plan is best for debtors who suffered a temporary financial setback and who can reasonably make a monthly set payment. However, debt management will likely not work for debtors who struggle paycheck to paycheck and who may have problems paying mortgage, car, and other forms of secured credit.

 Debt Management Warnings

Because of a wage garnishment, Debt management is likely not recommended when you’ve been sued, or you are in danger of being sued,

 Wage garnishment laws allow creditors to take a percentage of your paycheck each pay period.  I.E., In Nevada 25% of your paycheck can be garnished.

Through the hundreds of bankruptcy consults that I have conducted, I became aware of these above limitations. All of these debtors weren’t all in a formal debt management plan or any official debt relief program.  However,  many Debtors were often sued after having made significant progress in paying off their debt and raising their credit scores.  However, a past debt came back to haunt them, and soon after, they were sued, and a judgment and wage garnishment occurred, which resulted in them not being able to pay their debt management monthly payment.   Subsequently, they were then forced to file for bankruptcy.

Debt management is not advisable if you are struggling to pay necessities like rent, food, utility bills, etc. On top of that, because you will not have access to any credit cards, you will need to be able to save for an emergency fund for you to deal with unforeseen issues like car repairs. So, you might want to reconsider debt management if your debt management plan (assuming you have minimal or no savings) won’t allow you to save some money.

Recommendations

Debt management is an excellent way for you to methodically, whittle down your debt. Personally, what I like most about debt management is that it gives you a clear path toward debt elimination. Therefore, depending upon your debt, and the number of creditors that you have a debt management plan, can work well.  However, debt management is not a good fit if you have the above issues of old debts, potential lawsuits, or you are struggling to pay necessary living expenses.

Conclusion

Unfortunately, there isn’t one size fits all method for achieving relief from overwhelming debt as each of these approaches can be the right solution to fix your debt problems. Also, some of these methods will only work if you are not behind on your payments; but you are simply feeling overwhelmed with debt. Also, bankruptcy may be necessary if you have been sued, or you are in danger of being sued. So, if one way does not work, you need to then proceed to the next method.
My best advice, though, is that if you have questions on how to proceed, you need to ask yourself: “How long will it take for me to pay X amount of debt? (Click Here For a Debt Payment Calculator) Consequently, if it takes five years or more to pay off all of your debts, you need to get a free consultation with a bankruptcy attorney.