How
To Manage Your Debt
By: J Shipper
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.
Author Bio
J Shipper is interested in managing debt
www.bankruptcy-credit-cards-debthelpnet.info
www.credit-score-now.info
www.credit-cards-2006.info
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