I’m Drowning in Debt: Now What?

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If you’re drowning in debt, don’t worry — many Americans are right there with you, and now they’re looking for ways out.

The average U.S. household has more than $15,000 in credit card debt, more than $33,000 in student loan debt, and a whopping nearly $150,000 in mortgage debt, according to statistics from NerdWallet.com.

Why? Although many Americans have become more budget-conscious over the past few years, aggressive spending is the leading cause, according to Tony Wahl, credit expert of CreditSesame.com. Consumer spending accounts for more than two-thirds of U.S. economic activity, Wahl said, and in the run-up to the mortgage crisis many Americans were overspending.

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“Many used readily available credit and their home equity to purchase everything from cars and electronics to a child’s college tuition,” Wahl said.

The good news, though, is that getting out of debt isn’t a lost cause. While there is no single quickest way out of debt, Wahl says, like with any goal, getting out of debt is achievable by setting a realistic plan that you stick to until you ultimately reach your goal. The key is to ask yourself, “How do I get out of debt?” and then create a concrete plan using these tips.

Seek credit and debt counseling help from a financial adviser.

Even if you’re struggling to make minimum payments, getting out of debt is not hopeless, says Sam Burgoon, personal finance expert for bill organizing website Manilla.com and account executive at financial website CreditSeason.com.

“Even if you’re making the minimum payments, there are options,” Burgoon said. “My advice would be to start a debt management plan with an authorized debt counseling agency to be able to put your debts into one lump sum. It’s proven that people that follow this method become debt free in much lesser time.”

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For credit card debt, consider a balance-transfer credit card.

When you’re in credit card debt over your head, one option is to transfer the balance using a 0% intro period APR balance-transfer credit card, says Wahl. When you transfer the balance to a credit card with a lower interest rate, and continue to make the same monthly payment that’s more than the minimum due, you will pay less in interest over time, which will save you money.

Opt for debt consolidation.

Debt consolidation is simply the joining of two or more debts into one bill. The pros and cons of doing this are endless, and financial experts say that when trying to determine whether or not to consolidate, the answer is different based on your individual financial situation. The big advantage of consolidating loans is that it could help you pay off your debts more quickly and at a lower cost, in some cases, because it could lower your overall interest rate. But there are some downsides. For starters, the interest rate, depending on your current debts, is not always lower when you choose to consolidate. Plus, if you choose a consolidation plan that gives you a longer payoff period, you could end up paying more in interest over the long term, which means you may ultimately pay more than what you started with pre-consolidation.

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Identify your income-based repayment options.

When it comes time to repay the money you borrowed for your education, most U.S. federal student loan borrowers offer a wide range of repayment plans, including income-based repayment. An income-based repayment plan, which is usually only available for non-defaulted Federal Family Education Loans (FFEL) and Direct Loan programs (e.g., Stafford, Grad PLUS, etc.), allows for your minimum monthly payments to be solely based on the income you have now. To qualify, you must be in a “partial financial hardship” of some kind, which could include not making enough money at your first or second job out of school to cover your loan payments. To learn more about the benefits and disadvantages of an income-based repayment plan, read The Student Loan Debt Nightmares You Can Avoid.

Wahl said it’s important to keep in mind that not all debt is bad. “Certain types of debt are actually good, especially if it gives you something solid in return, such as an education with student loans or a home with a mortgage loan.” The key is to have a concrete plan to live with and manage the debt so that you don’t dig yourself into a deeper hole.

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