Personal debt reduction ideas that might do more harm than good - Tucson News Now

Personal debt reduction ideas that might do more harm than good

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(FOX19) -

When it comes to getting rid of your debt, here are some ideas that might do more harm than good.

Close your overdue accounts
The intention behind this piece of advice is that you won't rack up any more debt if you don't have access to the account. That makes sense, but there are easier ways to control your spending (cut up the credit card so you can't use it, for instance). In this case, you still owe the money, so your debt levels don't decrease, but with the account closed, your available credit declines. That hurts your credit utilization rate, which is the second-most important factor in determining your credit scores.

Bankruptcy is the easiest way out
Take a look at your debt before going the bankruptcy route — is it eligible to be discharged? If you're dealing with a mountain of student loan debt and a mortgage for a home you want to keep, bankruptcy isn't going to cut it. It will also do serious damage to your credit, and the effect can last up to 10 years.
Bankruptcy is not an "easy out." It's a difficult and complicated process that may require professional help. In the large majority of cases, if you mess up, your case will be dismissed and you're back where you started. If you think bankruptcy is a possibility for you, talk to a professional earlier rather than later.

Use your retirement funds to pay your debt
In the moment, the credit card debt is overwhelming, and there's the retirement fund, full of cash. It's tempting, but there's a reason you spend decades saving for retirement (or should): You'll need the money. Retirement funds are protected from creditors, so even if creditors sue you for unpaid bills, they can't touch your retirement savings.

If you ignore debt collectors, they will go away
Ignoring debt collectors is not going to do much for you, other than slowly drive you crazy. People don't always realize they can work with the collection agency to make payments work within their means, but it's a good way to start the resolution process. A cease-and-desist letter can stop third-party collectors from calling, but it doesn't resolve the debt, and it won't keep the original creditor from calling. When it comes to dealing with a debt collector, you need to focus on how you will settle or dispute it, depending on your situation.

Britt Scearce

Business Development

Emery Federal Credit Union

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