In the game of Battleship, the winner is determined by guesswork and chance, as anyone who's ever heard the words, "You sank my battleship!" knows all too well. Fortunately, life offers far more resources to help keep your ship afloat, even when it's weighted down by debt.

The success of your debt management reduction plan depends on reigning in your spending habits. If you've conquered that task, consider these options to ease the burden of your repayment obligations.

Negotiate with Creditors

When even the minimum payments are unmanageable, it's time to call your creditors and ask for help. Explain your financial situation and negotiate lower monthly payments and interest. Most creditors will comply if they believe that it will keep you out of bankruptcy. It's likely that the first person you reach won't have the authority to negotiate. Be persistent in asking to speak to a supervisor until you've reached a decision-maker.

Tap into Savings

Cashing out your investments and savings to pay off debt is good debt management: You're paying more in debt interest than you're earning on your savings. It's best, though, to maintain a small emergency fund, so that you aren't forced to borrow again. Be diligent about rebuilding your savings once the debt is paid off.

Refinance with a Bad Credit Mortgage

Some lenders specialize in mortgages for borrowers with spotty credit. You can refinance your home for a higher amount than your existing mortgage, and use the extra money for debt consolidation. The advantage is lower monthly payments; the trade-off is a longer debt repayment period.

Obtain a Bad Credit Home Equity Loan

If it doesn't make sense to refinance your first mortgage, you can obtain a bad credit home equity loan to consolidate the debt.

Borrow from Your 401(k) or Life Insurance Policy

You can also borrow money from a 401(k) or life insurance policy. Keep in mind that there are tax consequences to borrowing from the 401(k); ask your tax advisor for specifics.

Debt doesn't have to put you under water. If your debt level has gotten away from you, take steps today to right the balance, and your financial life will go swimmingly.

Published on June 14, 2008