October 24, 2009

Get Out of Debt - What Strategy Makes the Most Sense?

Get out of Debt - What Strategy Makes the Most Sense? Help!!!! I am on information overload. Can you look at my financial circumstances and tell me exactly what debt reduction strategy will make the most sense for me?

Sound familiar? You are not alone. Thousands of people ask this question every day and set out on the Internet looking for the answer. Unfortunately instead of honest and unbiased advice they typically encounter salesmen that focus more on convincing consumers to buy into their various programs than they do on educating the consumer about the best options available.

In order to help consumers from falling victim to a good sales pitch that is pushing the wrong solution, I wanted to create a general guideline to help consumers better understand what strategy will make the most sense for them given their unique circumstances. Over the next few weeks I will be writing a series of 6 posts, identifying the common debt reduction strategies and outlining general circumstances in which they could make sense.

The strategies that I will focus on are as follows:

1. A Debt Snowball approach
2. A Debt Consolidation Loan
3. Consumer Credit Counseling
4. Debt Settlement
5. Bankruptcy (ch 7. and ch.13)
6. Doing Nothing

As I write the posts I will be hyper linking the above strategies to their respective posts. The goal of this "When Does it Make Sense" series of posts will be to help you form a sort of a cheat sheet, to narrow down the strategies that you should focus your research on. Remember though, that this will only be a general guide and you should first ask a qualified financial professional to review your specific situation before making any final decisions.

There are many factors that need to be considered to help narrow your best option down to a specific strategy. They include, but are not limited to the following:

1. Your Current Cash Flow
2. Your Projected Cash Flow
3. Your Credit
4. Your Age
5. Your savings or lack there of
6. Your revenue source (ie. do you have a business or are you employed)
7. The amount of debt that you have incurred
8. The type of debt that you have
9. Your attitudes about money and credit
10. Your specific goals that you are trying to accomplish
11. Your retirement time line and the likelihood of meeting your financial retirement goals

Out of all of the factors listed above, Cash flow is one of the most important when it comes to a specific strategy. Cash flow is not something that is subjective like your goals or your attitude about money and credit. Cash flow is what it is. Certain strategies will simply not work without adequate cash flow. So before you even begin to research any of the above strategies, you must formulate a realistic budget based on your current and projected income and expenses. Moving forward with a debt reduction strategy without a REALISTIC (meaning, not your best guess) understanding of your income and expenses, is akin to throwing darts in the dark. Sure you could get lucky, but you are more likely to miss the board all together. Once we understand your cash flow we can then easily narrow down the list of the strategies that are available and most likely to work for you.

Remember, this series will consist of general guidelines and should not be used as the sole source of information to determine your best strategy. Please check back over the next few weeks as I write the posts for each specific strategy.

Have you used any of the strategies listed above to get out of debt? Please share your thoughts and experiences HERE