Financial Resource

More and more people are asking themselves, “how do I become debt free?” or even, “can I become debt free?” And the answer is, you can be debt free, and there are a couple ways to do it. Here are three to consider.

The first thing you have to do in your quest to have zero debt is to take an honest look at where you are right now. How much and what kind of debt do you currently have? I’m going to assume that like most people, you want to get rid of your credit card debt. This is the debt that is considered unsecured, meaning it isn’t tied to your house for instance. Unsecured debt will be the focus of this article.

The first “how can I become debt free” strategy is the debt roll-up. With debt roll-up, you evaluate your credit card bills, take the one with the lowest balance first – do not worry about the interest rate at this point – and add to the minimum payment what is called an accelerator. This accelerator is an extra chunk of money that you can afford to apply to this strategy until the cards are all paid off. Take the accelerator, add it to the minimum you are already paying, and apply the total to the first card until the card is paid off. Then take the total you were paying on that card (minimum plus accelerator) and add it to the next lowest balance cards minimum payment. Repeat this with all your cards until they are all paid off. Then take the total you end up with and start applying to your mortgage. If you follow this strategy to the letter, you will pay off everything in about ten years.

The second “how do I become debt free” strategy is debt consolidation. This one is simple, but has a dangerous pitfall. The idea is to take any equity you have in your home and apply for a home equity loan or refinance. You may be able to wipe your credit card debt free with this method, however DO NOT start using the credit cards again! If you do, you will find yourself back in credit card debt again, but now with the additional home equity loan to pay as well.

The third “can I become debt free” strategy is debt settlement. If you find you can no longer pay the minimums on your cards, but were able to save the money you would have applied to the balances, debt settlement may be a good option for you. That’s basically how it works. Simply stop paying on your credit cards. Be ready for a barrage of telephone calls, and be ready for your credit rating to take a hit – although it can be repaired – and be ready for settlement offers from the credit companies. You can usually settle for paying half of what you owe, sometimes down to 20%. And if you keep in communication the right way with the companies, chances are low that you will face legal action.

If you find yourself in deep credit card debt, remember there are ways to get out. So, if you ask yourself “can I become debt free?” the answer is absolutely!

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