Many consumers are overwhelmed by accumulated debts. In most
cases, the problem creeps up gradually, until the total debt
load reaches unmanageable proportions. Sometimes even minor
problems such as temporary illness can tip the balance for the
heavily indebted because they have no savings on which to fall
back. Here are some suggestions to help ease the debt burden.
Credit Cards If you know you are tempted to overspend on credit
cards, leave them at home when you go shopping. Pay with cash
and you will not have the temptation to overspend.
Develop a Budget To take control of your financial situation you
must have a realistic assessment of how much money you earn and
how much money you have left over to spend. Calculate your total
income, then list your "fixed" expenses - those unescapable
charges you incur every month - like mortgage payments or rent,
car payments, and insurance premiums. Next, list optional
expenses such as entertainment, recreation, and clothing.
Writing down all your expenses, even small ones, is a helpful
way to track spending patterns, identify necessary expenses, and
prioritize the rest. The goal of a budget is to ensure that your
basic needs are met before any discretionary spending. Contact
Your Creditors Contact your creditors immediately if you're
having trouble paying debts. Tell them why it's demanding for
you, and try to establish a modified payment schedule that
reduces your payments to a more manageable sum. Do this before
your account is handed to a bill collector. At that point, your
creditors have given up trying to collect the debt voluntarily.
Auto and Home Loans: Debts are referred to as unsecured or
secured. Secured debts usually are tied to an asset, like your
car for a car loan, or your home for a mortgage. If you miss
payments on a secured loan, the lender can repossess your car or
even foreclose on your home. Unsecured debts are not linked to
any any asset, and include virtually all credit card debt,
medical bills, signature loans, and debts for other services. It
is wise to pay off secured loans first, to avoid loss of assets.
Debt Consolidation Debt consolidation loans reduce interest
rates thus lowering your monthly payments. Shop around for the
best rates, and consider closing costs as well. There are many
different companies offering widely different rates.
Consolidation loans can give you a fresh start, consolidating
all of your loans into one simple payment, in virtually all
cases at a lower rate of interest.
Methods of Debt Consolidation
Credit Card companies and banks offer debt consolidation as
unsecured individual loans, with no collateral. Because these
are risky loans for the lender, they're usually more expensive
than secured loans and not always available if you have a lot of
debt and a bad credit rating.
Home Equity Loans, Home Equity Line of Credit, Interest-Only
Loans, and Cash Out Refinance are all secured loans using your
house as collateral. Rates are lower than unsecured loans, but
if you default, you may lose your home.
Credit Counselling Services
Credit counselling agents will help you get out of debt, though
they don't actually consolidate your debt. Instead, payment
plans (usually with lower interest and fees) will be worked out
for all of your eligible debts. You are left with a single
monthly payment to the counselling agent, who will pay all your
creditors.
Participating in a credit counselling program normally won't
hurt your credit rating and will provide a payment program to
clear up your debts in 3 to 6 years. However, be sure to choose
a reputable service provider. If the credit counselling agency
pays your bills late, you'll pay the cost since you are still
legally responsible to the lender.
Retirement Loans
If you have a 401(k), 403(b) project or even certain varieties
of company pension plans, it is possible to borrow against your
nest egg. (You can't borrow against your IRA.) You do not have
to pre-qualify. It is preferable to borrow against your
retirement account, rather than withdraw from it early to avoid
paying higher taxes and a ten percent penalty. But remember, if
you lose your job, you might have to pay your loan back
immediately or even pay taxes and penalties for an early
withdrawal.
Debt Class Action Settlement
This involves an agreement with a personal injury settlement
company. You make monthly payments to them, and they deal with
your creditors to negotiate a final settlement of your debts,
usually for fifty percent or less of the balance. Your credit
rating will go down if you use this option, but in extreme
circumstances it may be preferable to bankruptcy.
Most consumers can solve their debt problems by using one of
these plans. It is best to have a plan to pay off your debts in
3-5 years. Don't procrastinate -- choose an approach and begin
getting out of debt today.
About the author:
J Shipper is interested in managing debt
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