Consumer debt, while it can be helpful, is fraught with dangers and pitfalls. Debt can crush your future, and bring stress into even the best relationships.
Effects Of Debt
Today’s economic climate has many people searching for ways to deal with overwhelming debt. In this economy, money often becomes tight and it can become difficult to make the monthly payments on many accounts. If you or somebody you know is in debt, consider the following alternatives:
Self-help with realistic budgeting; avoiding debt through debt reduction and elimination; self-managed professional credit cards; payday loans; or debt consolidation, such as a debt settlement from an experienced, reputable company. It’s important to first determine the source of your current liabilities. These could include credit cards, department store cards, student loans, auto loans, medical bills, or unsecured personal loans such as utility bills. Now identify the best solution for paying off your bills. This will help you decide on which option to pursue.
How To Avoid Or Prevent Debt
The question is how to get out of debt and still have enough money to pay your bills each month. You can avoid debt if you follow the following basic rule: spend less than you make. Simple budgeting strategies will help you accomplish this:
Save as much money as possible each month. If you do not have an emergency fund set up this will help avoid debt. Emergency funds are money that is set aside either for a specific purpose such as a down payment on a new home or a family vacation, or for an unexpected event such as an illness or injury. Emergency funds provide you with cash during an emergency and allow you to make your necessary payments without worrying about how you will pay your monthly bills.
If you are trying to think of ways to avoid debt it is a good idea to begin tracking your expenses and think of areas within your budget that you can cut – for instance, if you have a large utility bill you can look for electricity in New York with a low rate, by making small adjustments like this throughout your budget your savings can add up.
Watch how you use your credit cards. If you are constantly spending on things that you could do without, then cut back or even cut up your credit cards until you can save enough money each month to avoid debt. If you cannot do without your credit cards, at least have a strict budget and stick to it. If you cannot control your spending then you need to find alternative ways to fund your expenses and this can be done. Remember to avoid debt and stay out of credit cards.
Do’s And Don’t Of Debt Repayment
With the assistance of a reputable credit counseling agency, many consumers find it easier to deal with debt collectors than with creditors. A reputable credit counseling agency will work with the collection agency to settle your debts. The agency sends a representative to your home to negotiate with the creditors. In most cases, the debt management plan is agreed upon between you and the agency.
Many people choose to work with credit counseling organizations because they provide financial education, budgeting tools and advice. When dealing with an agency, it is important to make sure that the credit counseling organizations fees are disclosed before signing up. Some agencies will charge a low monthly fee but require you to make monthly payments and may require you to turn over some personal financial information. Consumers interested in working with one of these groups should research each agency carefully before signing up for debt management.
The term debt repayment plan can refer to several different things. In the most simple terms, it could refer to just a personal financial pay off program which you put together to get rid of debt. More formally, you could enroll in debt repayment programs to repay certain kinds of debt in the best way possible. This program is typically used by people who have serious credit card debts and need to get rid of them fast. It is a great alternative to declaring bankruptcy because it does not damage your credit rating and in fact, might help improve it.
Another option available for debt repayment programs is credit counseling. If you do not have much debt and you want to use a debt management plan, a credit counseling company will contact all your creditors and try to arrange a payment scheme that is mutually acceptable. You then make one payment to the counseling service and they disperse the money among your creditors according to an agreement reached between you and your creditors. Most debt management plans last for about five years and you are required to make one payment every month towards the total debt.
Now we turn to how to negotiate with your creditors to get the best terms for debt repayment plan. You can start by sending them a letter asking them to lower your rates of interest as well as eliminate fees for late payments. You could consider consolidating your debts into one package and take out a debt repayment loan. Consolidating your debt into one loan is called debt snowballing. Debt consolidation means that you will ask your creditors to accept lower monthly payments based on the amount of available credit. A debt consolidation loan might be available if your available credit score is less than 500 points.
If you think this sounds too good to be true, then it might be. Debt consolidations are not advisable when you have numerous debts. If you consolidate your debts and still continue to pay the same amount of money each month, then you might be increasing your chances of incurring new debts and paying late payments for those debts. If your income is increasing, then you might be able to justify paying more monthly minimum payments.
It is important to understand that consolidating your debt is just a tool to help you stay afloat until you get out of trouble. Consolidation might be a good option when you are paying minimum payments on all your accounts and still accumulating debts. If you need help with your payments, a counselor can help you work out a plan and make regular payments that will help you keep from going into default. Or, you might want to try negotiating with your creditor for a better payoff amount for your account. If you are having problems making your monthly payments, then you might want to consider all of your options and go with the plan that makes the best financial sense for you.