Debt and credit

Getting Rid of Excess Debt in 2016

lady-in-debtIf you're a working adult in America, chances are you have more debt to your name than you would prefer. That debt may come in the form of student loans, credit cards, mortgages, car loans and more. Whichever it is, chances are you're dealing with at least one of these if you're reading this. For the most part, we acquire debt as a means to improving our standards of living. However, there comes a time when these debts become crippling and they lower your quality of life. This is an issue that affects too many Americans, even though there are viable options like debt consolidation and debt management available.

In February 2015, the Federal Reserve reported that U.S. citizens owed about $8.9 million in outstanding debt. And that number only accounted for credit card debt. The Federal Reserve also reported that the average American household has an outstanding credit card balance of $16,140. Clearly, America has become a cash-less society fueled by plastic and slaves to mounting balances.

And the numbers are even more alarming if you consider student loan debt. In 2013, the New York Daily News reported that student loan debt was now the nation's second-largest source of personal debt, exceeding credit cards and car loans and trailing only mortgages. And if you thought the credit card numbers were staggering, you're in for a surprise. In the United States, roughly 40 million student loan recipients have about $1.2 trillion in debt. In other words, the average borrower exits college saddled with approximately $29,000 of debt upon graduation.

And the rub is that these two leading causes of excess debt are often inextricably tied. College students and new graduates most commonly fall victim to the allure of credit cards because it feels like free money. Or maybe they want to use credit cards responsibly but due to the burdens of rent payments, car payments and student loan payments they simply aren't flush with disposable income and must use credit cards to get by.

According to, a person born between 1980 and 1984 had, on average, $5,689 more in credit card debt than a person born between 1950 and 1954. If the trend persists, it may create a new form of indentured servitude in which American citizens spend the duration of their adult lives paying off debt and opening new lines of credit to pay off existing balances.

Obviously, not attending college isn't a viable option. And swearing off credit cards isn't viable, either. So what options are available for people who want to further their education, use credit cards when necessary and limit their debt?

Well, if you're someone with significant debt, there are options available. First, you should know that a person is considered to have significant debt if they owe around $20,000. Though it may feel like you have no other options outside of simply paying your monthly balance, there are options. And these options should eventually get you off the treadmill of paying excess debts.

Debt Consolidation

Consolidation is another option for heavily indebted. Like with credit counseling, the counselor assigned to your case will negotiate with your lenders and attempt to lower your principle balance. If terms are met, money will be deposited into an account each month until the agreed upon balance is paid in full. The same will then be done for any other accounts until those balances are resolved as well. This method simplifies the situation for the debtor by allowing the consumer to make just one payment per month.

Furthermore, there are a number of private lenders and peer to peer lenders who can help you simplify your payments and allow you to pay off your entire debt with one monthly payment.

Credit Counseling

Counseling guides indebted consumers in managing their existing debt while giving them the financial skills needed to avoid taking on additional debt. While there are a number of approaches credit counselors can take, developing debt management plans is the most typical.

In such cases, your counselor will negotiate with lenders in order to lower interest rates or waive finance charges and fees. There are a number of good companies out there willing to work with you no matter how bleak your situation may appear.

There are a number of quality credit counselors available, and interested individuals can visit the National Foundation for Credit Counseling's website. In addition, the Independent Association of Certified Counseling Agencies also offers excellent credit counseling programs.

Debt Management Programs

Debt management programs are very similar to credit counseling in that they pair you with a counselor who will spend time with you going over your income, assets and debts and develop a repayment strategy suited to your situation. However, something to keep in mind is that mortgages, home equity loans, and auto loans are not included in most debt management programs. Furthermore, student loans are generally not covered by debt management programs either so this option is best for those seeking to manage credit card debt.

Debt Settlement

Often times, you'll reach a point where your debt is simply too high and you simply can't afford to pay your balance in full nor can you afford to make the required monthly payments. Oftentimes, creditors will reach an agreement with you to gradually repay a smaller amount in lieu of sending your account to creditors.

File Bankruptcy

This is considered the last resort. It's essentially tapping out or hitting eject. This should only be an option you should take if your debts reach extreme levels where even credit counseling or consolidation would not be able to significantly reduce your financial burden. Filing bankruptcy absolves you from paying all existing debts with the exception of student loans. However, this absolution doesn't come without its caveats. The primary caveat being that it has significant negative impacts on your credit. First, it will knock about 200 points off your credit score. Furthermore, credit bureaus will report your bankruptcy for up to seven years so it has a long-lasting effect.

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