Wipe off your debts

Debt elimination is the process by, which a debtor may dispute his debt account and ask the creditor to validate the same account. It may also be referred to as a process where a borrower tries his best to reduce his debts and ultimately become debt free.

Debt Elimination is an effective way of reducing one’s debts but this may not be true always. The reason being there are many agencies offering help to debtors to make them debt free. Some of these companies opt for illegal methods of debt elimination. Debt elimination should however be done in accordance to the Fair Debt Collection Practices Act; Fair Credit Billing Act and Uniform Commercial Code.

Debt elimination approach:

A borrower may opt for any one of the following approaches for debt elimination.

Experts have recognized two ways of eliminating debt. It may be mentioned here that prior to opting for a debt elimination process, the borrower should realize the importance of doing so. He should understand the graveness of the situation.

Approach 1- To eliminate debt accounts with higher rates of interest:

In the first method, the debt accounts with higher rates of interest may be settled first. This may be understood by a simple example.

Example:

Let us assume that a debtor has the following debt accounts whose unpaid amount and interest rates are as follows:

College loan USD$20,000 and IR (Interest rate) is 5%

Computer loan USD$2,000 and IR is 10%

Car loan USD$3,000 and IR is 4%

According to the first approach, debt account for the computer loan (10%) will be settled first because it has a higher IR, followed by the college loan (5%) and then the car loan (4%).

Desirable settlement as per first approach will be settle the debt account with 10% interest rate followed by 5% and 4% thereafter.

Approach 2- To eliminate debt accounts starting from the smaller unpaid amount to the larger ones.

Example:

Let us take the same example; here we concentrate on the unpaid amount and not the IR.

College loan USD$20,000 and IR (Interest rate) is 5%

Computer loan USD$2,000 and IR is 10%

Car loan USD$3,000 and IR is 4%

The second approach is reducing the debt from ascending order of unpaid amount. So, the

Desirable settlement as per the second approach is to settle the debt account with unpaid amount USD$2,000 followed by USD$3,000 and USD$20,000 thereafter.

Secrets of debt elimination:

Following are the debt elimination tips that may be followed if a person wants to become debt free.

• Expenses should be less than the income
• Expenses should be according to a budget worked out properly.
• There are many saving and investment options and people can opt for options like CDs or Certificate of Deposit, Savings account and MMAs or Money Market Accounts.
• Only one credit card may meet the requirements.
• Prioritize expenses
• All payments should be made on time so that there is no scope for default or late fees.
• One should not fall into schemes having tag “pay later, buy now”.
• One should be aware of the hidden costs while buying a policy or plan.
• More money should be kept aside for retirement fund.

Beware of the “Good Samaritans”

• There are many debt elimination agencies claiming that they will bail out individuals from debt traps. When their services are hired, they show their true picture. They say that the expenses made through credit cards are not legal and one has to shell out more money to settle the account.

• There are others who for a fee of USD$2,995 assures the borrowers that they do not have to pay up any money but at the time of settlement, they fail to keep their word.

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