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Finding your way out of debt

There are many reasons for a person to have less-than-perfect credit, such as missed payments due to job loss or high debt because of medical emergencies. Whatever the reason, climbing out of debt one payment at a time can be an uphill battle, with each payment leaving you just where you started and with no end in sight.

One debtor, for example, has been making loan and credit card payments for more than six years, yet he can't seem to make a dent in his mountain of debt. His woes stem from previously missed payments, which have resulted in additional fees and unmanageably high interest rates. There are options, however, to get out of this debt, one step at a time.

Credit counseling organizations affiliated with the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies can help you review your finances and speak to creditors on your behalf. There may be fees, but most plans will have you out of debt in five years or less.

Getting out of debt, especially high amounts, requires an extensive knowledge of your own finances. Creating a disciplined repayment plan can help get you back on track. Take a good look at your monthly expenses and decide on a specific amount that you can pay each month. Cut out unnecessary expenses, such as trips to the theater and restaurant dining. The more you can pay each month, the faster you can get out of debt. It may also be worth your time to talk to your creditors and ask them to reduce your interest rates.

While some people view it as a last resort, bankruptcy can be a good way to get out of debt. Chapter 7 discharges unsecured debts while Chapter 13 helps you repay some debts over a specified time period. Your credit score will take a hit and you may lose some property, but many people are willing to accept the costs to get out from under heavy debt.

Source: CreditCards.com, "Make sure your payments make a dent in your debt," Erica Sandberg, Nov. 9, 2011

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