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You probably do not remember how easy it was to get your first credit card or loan. You also do not remember your lenders putting out the red carpet because they thought you would repay your loan on time, and come back for a new one before long. This affair with your lenders continued as they gave you credit, loans, and a bonus gift to thank you for your business. However, one or more things may have happened to spoil your affair with your lenders. Perhaps, you now have too much debt, or you cannot make the monthly payments anymore because you do not have a steady job. If you find that you cannot manage your debts, or the payments leave you without proper food, for example, you may want to consider one or more of these three debt solutions.
Credit Counseling
This is a good first step. You can work with a credit counseling company to help you get your finances in order. Once your financial house is in order your counselor can contact your creditors with a plan to repay your debt. Of course, this is not automatic because you still have to get your creditors' approval. But your counselor will negotiate with your creditors to get you a good deal that has value to both you and your creditors. Remember that creditors do not want you to stop paying altogether. They much prefer to work out a deal for certain terms rather than have you skip town. You also must remember that once you have income coming in your creditors might not agree without some significant concession from you. So it is important you discuss your financial position truthfully with your counselor before she approaches you creditors with one or more debt solutions.
Self Repayment
If you have enough savings, you can use this money to pay off your debts. Yes, this could affect your future if you use your savings to clear your debt. But look at it this way: your savings are probably earning 1-2% annually, and you are likely paying 18-24% interest computed monthly. Even without converting the monthly rate to an annual rate, you can see you are paying out more interest than you are earning. In other words, assuming a 2% rate, you receive $20 in interest annually for every $1,000 in savings. This works out to less than $2.00 per month. Similarly, if you decide to payoff $1,000 in debt you will save the interest calculated each month. Again, without complicated math, you can see you are way ahead by using your savings to pay off your debt. Once you pay off your debt, you can begin to save for the future.
A Home Equity Loan
If you own a home and you have equity in it, you can also use the equity as collateral for a loan to repay your debt. This is a popular method nowadays because most people have some equity in their homes, having bought them for much less than they are worth today. Of course you may be wondering about taking such a drastic step to repay your debt. But many people are waking up to the reality that health concerns should supersede the myths about owning your own home. What is the use of worrying about paying off your debts when you have the money. Indirectly, you ran up the debts to help maintain the home, so why wouldn't you use the equity to pay off the cost associated with running the home.
All of these debt solutions require your full attention. Using one or more of them can free you from an unhealthy debt hell.
In more serious cases, an individual owning 100 thousand dollars of debt due to gambling and without collateral so to obtain a loan may have to consider filling for bankruptcy as his debt solution.
Subsequently, you might need or require the help of a professional in order to direct you to the right course, constructing a budget plan for you in order that you will be able to monitor your expenditures as well as manage your cash more efficiently.
There is nothing to be embarrassed about in obtaining professional assistance to recognize workable debt solutions that are available to assist you.
Furthermore, there is no cost required in obtaining information. Most trustworthy debt management firms provide debt assessment or free consultation that you can benefit from. Inquire about the company's debt solutions as well as what you might be qualified for.
While any debt solution is constructed to meet all your exact requirements, they fall usually into 1 of these 3 categories:
1."Debt consolidation".
This type of debt solution is used generally to combine all your existing loans into one new single loan that with much lower payments every month.
•Your debt is stretched over a much longer period than your current loans.
•Your debts' interest rate that will be charged is typically less than your existing debts average rate.
Even as debt consolidation may not be the solution for many individuals, it is useful means during a time of low rates of interest or there already is adequate equity built-up in your property that you may need to arrange a remortgage or second mortgage.
2.“Debt management”.
This type of debt solution is for individuals who opt not to refinance all their current debts and the other choice is to make contact with their creditors in anticipation of reducing their monthly payments.
However, this solution is most successfully accomplished through hiring a professional debt or loan managers.Your debt manager will obtain your financial statement in order to find out and establish how much you can manage to pay monthly your creditors after you have paid your overheads and living costs.
This extra or remaining money is then divided on a “pro-rata” basis between your creditors and presented as a portion of an informal agreement between you and your creditors.
Since debt management agreements are informal, it is important to note that they can anytime be called off by any of your current creditors. While this can be a great risk, your reliable debt manager generally will bring seriously work on your case ensuring that arrangements made are more strictly observed.
3."Bankruptcy".
This is the most extreme type of debt solution available but should be carefully considered, especially if your situation is really bad.
In certain cases however, bankruptcy can be your best option. However take note that once you declare bankruptcy, you can be locked-up to it typically for several years. Bankruptcy long-term consequences include not being able to have credit access, open up a current bank account or be in specific kinds of businesses.
Bankruptcy must be your last resort so to solve all your financial difficulties. It must only be utilized after you have explored all other types of debt solutions.
Keep in mind that debt solutions take approximately three-five years until you are totally debt free. At this time, you are required to surrender all your credit cards with the exception of just one and control all extravagant expenses.
Debt solutions are types of financial reconstruction and will not adversely reflect on your credit. Creditors in fact view this as a constructive effort on the road to better “financial management”.
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