The first thing that comes to mind is to consider whether or not to have yourself committed. Just stop and think for a minute. You are in debt. You got into debt because you borrowed money. Why on earth would you think borrowing money to get out of debt is a good idea?
If you are considering borrowing money to get out of debt, I think you have to ask yourself if you really want to get out of debt. If you do, then don’t borrow more money. Even a five-year old could tell you that you will be even further in debt.
Let me paint the typical scenario for you. Ms. Broke is in debt. She really couldn’t even tell you exactly how it happened. It just seemed to creep up on her. Everything was going along fine. Sure, she used credit cards, had a student loan, took out an auto loan and a 30-year mortgage. But, she didn’t do anything that everyone else doesn’t do. But all of a sudden, she realized that she was struggling to make ends meet and she started to fall behind on her payments.
So, Ms. Broke took out a second mortgage on her house so that she could “consolidate” her loans. She rolled her credit cards, student debt and auto loan right into the mortgage and had a clean slate. Ahhhh… she could breathe again.
The only problem was since Ms. Broke didn’t correct her spending habits or get rid of her plastic, she started charging her purchases again. Then she had a couple of unexpected emergencies; her car needed repairs, and her HVAC unit died and had to be replaced. Before she knew what had happened, she was over her head in debt again. Only this time, it was worse, because her debt was double.
Unfortunately, this is far more typical than you might believe. If you are in debt, what you should absolutely not consider is to:
1) Jeopardize your home by taking out a second mortgage;
2) Jeopardize your retirement and face fees and penalties by taking money out of your 401K;
I also wouldn’t consider a consolidation loan. Again, the principle just doesn’t make sense. You are wiping the slate clean and unless you are somehow different from 99.9% of the people who try to borrow their way out of debt, you will start loading up those cards again in short order.
So, how do you get out of debt without borrowing more money? You cut back on your spending, you increase your income, you save money for emergencies, and you send everything you can to your creditors to get your debts paid off as soon as possible.
You may be able to negotiate a lower interest rate or a better payment plan with your creditors. It’s certainly worth a try.
I highly recommend the debt snowball method to get out of debt. Pay the minimum monthly payment to all but the bill with the lowest balance, and focus all of your resources on getting that bill paid first. Once that one is gone, you add the amount you were sent there to the minimum monthly payment of the next lowest balance and focus on getting that one paid. Just go up the line paying off each debt in turn with your payment snowball.
There is no magic trick to get you out of debt. Borrowing was what got you into the mess you’re in. You can’t expect to borrow more money to get you out. What will get you out of debt is time, discipline, and maybe some extra work.