Ladydebt

There are so many reasons to get out of debt its not even funny! I want to take a few minutes and several paragraphs to cover some of the bigger ones and hopefully help a few people along the way. The reasons that I will cover include the economics of being in debt and the mental and physical slavery of debt.

First, however, I want to talk about the different kinds of monetary debt. First there are no interest loans which are the best possible kind (if there is a good kind) but depending on the other costs involved may not be worth the savings in financing charges. Second there are the low cost loans that are made even lower by the tax benefits that you may receive from paying interest on these loans (even allowing you the chance to get out of debt). You must be disciplined here but these types of loans can actually allow you to make money using the borrowed money. The third type that is by far the worst type is the credit card loans which are typically high interest and are usually not used to pay for smart buys. These will be discussed in more detail in the paragraphs below.

The first type is a good way to get out of debt especially if given in a contractual relationship buy a source that has no emotional attachment. The trouble is that it is rare to find this kind of loan publicly and so family and friends are generally the source. Let me ask the most important question right now and then answer it. Is the money and the thing you are buying with the money worth the huge costs of the broken relationship that results in over 50% of these situations? NOOOOOO! Be VERY cautious about going into a financial partnership with someone that is close to you.

The second type mainly include school and house loans. There are tax benefits to these types of debt and the product that you receive is the type that tends to appreciate rather than depreciate. Often these loans are of the low interest types and are set so that people will get out of debt for these loans. Typically these are the only type that I would recommend.

The third type is credit cards. Credit card companies DO NOT want people to get out of debt which means that you should stay clear of them especially considering the astronomical finance charges that come with them. People are buried financially every day because they cannot control the feeling of power they have with credit card spending. The only people that should use these are people that are VERY disciplined with money and can pay off the balance every month. In these cases a credit card is actually very convenient and with the new cards that offer cash back can be wise. This applies to a very small minority of people, so in general stay away from them.

Debt is a fact of life in America, making debt relief a national obsession. A search for debt relief on Google pulls up over 34 million pages; on Yahoo and MSN, the total is over 12 million pages.

The average American household has 9,300 of credit card debt, but the share of income going to lower credit card debt has fallen to 0.3 percent.

The increase in personal debt cant all be blamed on overspending. After adjusting for inflation, wages have been flat for the past five years while the cost of essential goods and services like housing, food, medical care and transportation have risen over 11 percent according to the Federal Reserve Board’s most recent Survey of Consumer Finances.

Housing Debt
Based on this study, the Washington Post recently reported that,

The debt of the typical American family earning about 45,000 a year rose 33.1 percent from 2001 to 2004, after adjusting for inflation Housing debt has climbed notably because home prices have risen and people have borrowed against the equity in their homes. From 1989 to 2004, for example, the median mortgage debt more than doubled, from 46,900 to 96,000.

This refinancing trend is one of the main strategies for debt relief. It takes several forms: first mortgage refinancing, second mortgages, debt consolidation loans and home equity lines of credit. These mortgages can be either fixed-interest or adjustable-interest loans.

Many websites keep abreast of current interest rates and offer a free mortgage refinancing application that matches potential borrowers with the best loans based on factors like credit history, FICO score, type of mortgage and size of loan. www.LowOwe.com is typical of sites that help clients reduce the monthly cost of home ownership through refinancing.

Debt Consolidation Loan
A debt consolidation loan converts a passive assethome equityinto ready cash for debt relief. It is easier to get than other forms of borrowing because the loan is secured by tangible property. It makes better sense than borrowing against the cash value of a life insurance policy or pulling money out of a retirement or 401(k) account.

New or refinanced mortgages dont really reduce debt, but they can restructure it in beneficial ways. Benefits include: being able to pay off high-interest credit cards and other forms of revolving debt; making home improvements that increase the market value of the house; having a single monthly payment at a lower rate of interest. An added plus is that the interest on a home loan or mortgage is usually tax deductible.

But dont wait too long to refinance. CNNMoney.com reports that, Real estate gains came to an abrupt halt in the first quarter of 2006, with the median price of a U.S. home falling 3.3 percent from the fourth quarter of 2005. Prices were basically flat or lower during the quarter as inventories of houses for sale rose and their time spent on the market lengthened, according to a survey of 149 markets by the National Association of Realtors.

Even if the Feds keep raising interest rates, mortgage refinancing and home equity loans will still be the preferred form of debt relief for homeowners who find themselves in a financial pinch. At a time when the national savings rate is below zero, home equity is the only asset many people have.