Debt Solutions

Most people find their email in-boxes overflowing with offers for all kinds of products and services, ranging from skin-care to sunny vacations.  One of the most common services on offer is 'Debt Solution '.  In this case, the service-provider promises to clear out the frowns and bring back the smiles by providing a happy solution to the individual's debt problems. 

The first thought that comes when looking at debt solutions is - why do people get into debt at all?  Why do men and women today not follow the age-old wisdom of 'living within one's means' or, to use a tailoring idiom, 'cutting the coat according to the cloth'?  Good sense and logic certainly dictate that one should spend only what one can afford to; but such homely wisdom has been thrown to the winds since the advent of plastic money-the credit card.  The prospect of buying everything that one likes without immediately paying for it is so attractive that with each swipe of the plastic, one gets further and further mired into indebtedness. 

Obviously, the first debt solution is the best - do not get into debt at all.  Doing a few simple budgeting calculations can ensure that one stays on the safe side of the debt-divide; avoiding impulse purchases, frequent eat-outs and unaffordable vacations would also be part of the solution.  However, not everyone is strong-willed to resist the spending devil and, trouble starts when the credit card refuses to go through and the card companies start calling and getting nastier with each call.  In some special cases, there are genuine reasons for getting into debt; families get into debt after death of the earning member, or owing to divorce, separation or single parenthood, disability, illness or injury.  These are understandable reasons for financial crises and debt solutions are very crucial in such cases. 

Debt management includes a range of strategies and services and today a whole auxiliary industry has mushroomed around these needs, from the 'Pay day Loans' around the corner to the email wizard who holds up visions of 'Eliminating Debt'.  The most common solution offered is debt consolidation, where balances from various creditors are combined into a single debt, which can be repaid to the consolidation company, who in turn will pay the various creditors.  The problem is that most consolidation companies charge a recurrent monthly fee for their services, which worsens the debtor's finances.  Great care should be taken in choosing such a company; many of these 'debt eliminators' are shady outfits, who fleece the desperate customer at every opportunity; some of them delay the pay-back to the card companies, thus damaging the debtor's credit record further.  It may be wiser for the individual to approach the card companies directly and reschedule payments, starting with the highest owing first.   

Acquiring low-interest balance transfer facilities is another offered option; here the downside is that the low interest rates revert to their original levels after the introductory period and one has to switch cards again, which is a credit-report risk.   

Debt negotiation and debt arbitration services are also available in the market; here the negotiating company either negotiates with the creditors to agree to reduce the owings, or goes in for third-party arbitration to agree upon a lower balance.  For any kind of debt settlement, it is advisable to go with a reputed firm of attorneys; entrusting one's debt management to small-time operators can damage credit further and expose the debtor to the hazard of a lawsuit. 

For chronic and long-standing debt cases on the verge of bankruptcy, financial consultants recommend an IVA - Individual Voluntary Agreement.  Under this, the debtor reaches a compromise with his creditors to make a larger repayment of his loan than would be available to the creditors in the event of bankruptcy.  The advantage of IVA is that it is legally binding and is not on public record. 

Bankruptcy is the ultimate debt solution, in hopeless cases.  It is, however, a recourse to be avoided; while it closes up the debt situation within a time limit, it inflicts severe and long-term damage to the individual's credit, reputation, social standing, impairs career prospects and becomes a part of public records. 

There are other strategies for debt management, which can be adopted where some assets are still available.  A home equity loan carries a long term as well as comparatively low interest and a part of the interest can be offset against income tax.  A home can also be refinanced and the money thus obtained can be used to repay the debt.  Similarly, a car can be refinanced to get a breather on the debt.  In case where the credit history is intact, a personal loan can be availed from a bank or a credit union.   

There are non-profit advisory bodies, which offer counseling and confidential advice on debt management, such as the National Foundation for Credit Counseling (NFCC). 

The best debt solution is still the first - Spend only what you have and stay debt-free.