What's the Best Way to Get out of Debt?
Debt is the hottest topic on personal finance blogs around the world. Why? I would venture to guess it is because so many people are drowning in it. The unfortunate truth is that few people care to read about debt until it has already had a negative affect on their financial situation. This can make the final solution to their debt problems even more difficult to hear about.
I'm no stranger to debt. I had been managing school loans, vehicle loans, and a few small credit card payments since I was 19, and I was successful in keeping a clean credit record. Then a few poor life choices left me responsible for over $30,000 in credit card debt at age 24. With nothing tangible or memorable to show for my efforts, I could have become bitter. Maybe I could have filed for bankruptcy (this was before the laws changed considerably.) Ultimately, however, I chose to consolidate, reduce the rate, and pay those debts off early.
Why am I telling you all of this? Two reasons: (1) It lends credibility to my view on debt and repayment. (2) To keep you from throwing things at me when you read the next paragraphs:
The number one question I hear from people in debt is NOT: “What's the best way to pay this off?”
It is usually: “How do I get out of this debt?”
Note that in their wording, they are usually implying that they are wanting to get out of their obligation of the debt, though not necessarily through repayment. Google searches for popular debt-related terms bring up scads of results for help in “Getting out of debt” -- all of which seem to give a quick and easy way out. A few clicks and some reading will tell you, however, that the scheme is all the same, and repayment is almost always involved.
So to answer the question of “What is the Best Way to Get out of Debt?” -- my answer is simple: Whatever way is quickest, easiest, and costs you the least amount of money, while at the same being perfectly legal and moral. Ditching your financial obligations by having a cousin co-sign while you walk away is NOT the best way. Making a conscious decision to default when you could be paying something (anything) is NOT the best way. Looking for answers from the sky for a way for you to not have to repay a debt (when you could if you wanted to) is NOT the best way.
I am saying this with the full understanding that someone reading this will have a unique situation that warrants blowing off a loan. I will guarantee that a handful of others will insist that they had no choice. I am, therefore, not talking to you, specifically. The $30,000 in debt that I repaid gave me zero benefit. It was the product of putting my name on a few accounts that were taken advantage of in the most grievous of ways. It would have been easy to say, “It wasn't my debt,” default and start over 7 years later, instead of taking almost 6 to pay it all back. For this reason, I am speaking to the majority of those suffering from excessive debt who may not feel the benefit of their spending, realized they spent more than they could truly afford, or who simply got the short end of the debt stick. A loan is a loan, which is almost always best to pay back. Period.
I realize that if everyone paid back their loans, small claims courts would shut down, and debt collectors would lose jobs. Search Engine Optimization would change dramatically, and books on finance would lose their place among the Best Seller's List. Thankfully, there will always be those who won't pay up. But for the rest of us, there is still one answer to the debt problem: Make payments – no matter how small. As painful as it feels right now, no amount of money can buy the integrity and honor of making good on a loan.