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.
For more information about debt
management, visit www.ezmortgagesolutions.net
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