All Financial Matters

There are lots of options out there for those of us who are too far in debt. There is credit counseling and debt consolidation. There are lawyers offering to have your debt reduced for a fee, and in extreme cases, there is bankruptcy. With all of these choices, one might imagine that it’s impossible for a person to get out of debt on his own.

The truth is that it is quite possible to get out of debt with no outside help. Even those who don’t think there is room in their budget to pay down their debts are often surprised. It takes willpower and determination, but you can usually get out of debt on your own.

How do I get out of debt on my own?

Are you too far in debt? If so, in order to get out of debt on your own you will need to develop a plan and stick to it. Here is a good plan to follow:

1. Stop accruing new debt. Put the credit cards away, and refrain from taking out new loans or refinancing old ones to borrow more money.

2. Create a budget. You need to know where your money is going each month, and in which areas you can cut back to free up more money to pay off your debts. If you’re not sure where your money is going, write down all of your expenses for a month and then make your budget.

3. Cut the unnecessary items out of your budget, and cut back anywhere else you can. Set this money aside to pay down your debts.

4. Determine which debt needs to be paid off first. If you have secured debts other than a long-term mortgage, you may want to pay them off first. Debts with high interest should also take priority, unless you have lower interest credit cards that charge exorbitant annual or monthly fees.

5. Pay the minimum payment each month on all of your debts except the one that you have given top priority. Put all of your extra funds toward that debt, and continue to do so until it is paid off. If you get a bonus at work or unexpected money from some other source, consider putting it toward your debt as well.

6. When you get one debt paid off, start putting your extra money toward the next one. Repeat until all of your debts are paid in full.

Paying off debt on your own is often easier than you think. By taking a realistic look at our finances, we can often find ways to come up with the money to pay debts off without the help of anyone else. Doing so helps us maintain good credit, or rebuild our credit if it is imperfect.

The society of today is built on plastic — the “charge and go” kind. It makes you wonder what people did before credit cards were invented! With those plastic wonders has come a mountain of debt. If this applies to you, to keep that debt from growing any larger consider giving your plastic the boot.

Did you know that some credit cards carry an interest rate as high as twenty-nine percent? You wouldn’t want an interest rate that large on your home or car, so why settle for it on your credit cards? For those credit card companies that offer a super low interest rate at the beginning, if you miss one payment, the interest rate jumps up to around a whopping eighteen percent or more. Read the fine print.

Credit cards are a way of establishing credit. Purchasing items and making payments on time lets potential credit lenders know that you are an acceptable risk for them. Good credit helps people to qualify for low interest loans on houses, cars, and furniture.

But that good credit standing can quickly change if you begin to charge more on those credit cards than you can possibly pay back. Interest is tacked on each month that the credit card carries a balance. It may be only a few dollars now, but let the balance linger for a few months and you will see the difference.

Using credit cards for intangible things encourages debt. It is convenient to purchase groceries, gas, pedicures, and other services on a credit card, but in a few weeks there will be nothing to show for it. When the bill comes, the food will have been eaten and the gas gone from the tank.

There’s no need to get rid of all of the credit cards. Keeping one card is okay for emergencies. We’ve all had the odd bit of car trouble now and then. Or, even worse, something happens to the heating unit or something else in the house. A credit card provides emergency money for the types of things that are unexpected.

What about the other cards? Cut them up! As soon as the balance reaches zero, call the credit card company and cancel them. Be aware that the representative will try to entice you to stick around. They may even offer to up the credit limit. It’s a trap, so don’t fall for it.

Before there was plastic, people used to pay with cash. Remember cash? If people didn’t have enough money, they waited until they did. We all could take a page from their book. People are too comfortable carrying around a boatload of debt.

Get rid of your debt for good. Keep one credit card for emergencies and let the rest go. Pay with cash or not at all. If it is meant for you to purchase a particular item, then it will still be there in three or four months when you’ve got the cash.

We all get into financial situations that we can’t handle from time to time. Sometimes the debt we incur is more than we can cope with and we need help. If this applies to you, then debt settlement is one possible solution. However, be aware of all that it entails in order to make an informed decision about whether it is right for your situation.

Debt settlement involves using a third party to manage the debt situation. You may have tried to talk to the creditors but to no avail. Each month that the payment is late, there is a fee. Once the fees push the balance over the credit limit, there is another fee. Things can get out of control in an as little as a few months.

Debt settlement puts you in touch with an agency that specializes in helping individuals deal with serious debts. Debt settlement agencies will review your situation to see if you qualify. Debt settlements are mainly done for unsecured debt. This includes unsecured credit cards, store charge cards, gas cards, and the like. There is nothing backing the extension of credit except your good name. Creditors have taken a risk with you as to whether you can repay any debt that you create.

Debt settlements can still affect your credit in a negative way. Creditors may report that you are entering into a debt settlement plan and other notations that can turn away future creditors. If you use a third party debt settlement agency, make sure that you understand this fact.

Once your case has been accepted, the debt settlement agent will look at several factors to determine a repayment plan for the debt. The amount of the debt is important. It needs to be beyond your ability to repay without some intervention.

The debt settlement agent will look at the interest rates being charged by the credit card company. During a debt settlement, they may be able to talk the creditor into lowering the interest rate to a more manageable one. The same goes for late fees. If late fees are a problem, the creditor may waive them in the interest of recouping some of the debt owed to them.

Working with an agency, the monthly payments agreed upon are made to the debt settlement agency. From there, they forward the payment to the appropriate creditors in accordance with the terms of the debt settlement. Your payments may include their fee for the services rendered.

Working with a debt settlement agency can keep the creditors off your back. Those annoying phone calls will stop most of the time once arrangements have been made for creditors to get their money. A few may still try to harass you, but the majority will be glad they are getting something from you.

Debt settlement agencies aren’t for everyone. Try to work out a deal with the credit card company before using a third party to do it for you. Besides the fees that may be charged to you, your credit could take a hit in the process.

When many people think of debt management, they think of rearranging their budget so that they can pay off debts. But there is more to it than that. In fact, debt management is most effective when it’s done before debts get out of hand.

Debt management simply means keeping debts down to a level where they do not present a problem. Those who have managed debt successfully can usually pay off credit card balances each month, and they often put extra money toward loans to pay them off more quickly. They do not take on more debt than they can handle, so they have no trouble paying it back.

Tips for managing debt successfully

* When going into debt for a necessity like a house or car, shop around for the best interest rates. This will keep your monthly payments lower. But that doesn’t mean that you can’t put extra money toward the payment each month and pay the loan off ahead of schedule.

* Shop around for credit cards as well. They are not all created equal. Some have higher interest rates than others, and some charge annual fees while others do not. If possible, get a card that offers cash back on purchases.

* Limit your credit cards to one or two. The more credit cards you have, the more temptation you will face. If you are managing your debt properly, you won’t need more than two cards anyway.

* Refrain from getting cash advances. These usually carry a higher interest rate than regular purchases. If you need cash in an emergency and must get an advance, paying it back as quickly as possible will minimize the charges.

When debt gets out of hand

One of the most important aspects of debt management is knowing when you’re getting into too much debt. People often do not realize that they’re in too deep until their debt has become completely unmanageable, making it much more difficult to get back on track. By recognizing when debt levels are getting too high, you can retain control of your finances.

Early signs that you’re getting into too much debt include the following:

* You are having trouble making your minimum monthly payments.
* You use credit cards to buy everyday necessities, without paying the balance in full each month.
* Your total charges each month add up to more than your total payments.
* You are approaching your credit limit.

If you find that you are heading toward too much debt, taking action quickly could save you a lot of trouble - as well as a lot of money. By recognizing the early signs of debt overload and paying debt off as quickly as possible, you could regain control over your finances before you know it.

Paying off everything we owe on our own is the preferable way to handle debt. But sometimes that’s easier said than done. Our circumstances often change, making it impossible to even make our minimum monthly payments.

Debt consolidation is a solution sought out by many debtors who are in too deep. This can be achieved by transferring all debt to a low-interest credit card, or by taking out a home equity loan. There are also debt consolidation or credit counseling services that consumers can utilize.

How do these services work?

Credit counseling consists of negotiating with a client’s creditors for lower interest and/or lower payments. Late and over-the-limit fees are often waived as well. Then the client sends the credit counseling agency one payment each month, and the agency distributes the money to creditors as agreed upon.

The pros

If you’re unable to negotiate lower rates and payments with creditors on your own, a credit counselor can usually do it for you. This will save you money and help you get your debt paid off more quickly. The credit counselor can also help you write a budget to help you stick to the payment plan while still being able to afford all of your other expenses.

The cons

One problem with credit counseling is that it sometimes does not result in a monthly payment that the client can afford. Creditors are only willing to negotiate so far, and if you owe a lot of money you may not be able to afford the best deal they will give you. If that is the case, you’ll have to either find another means of paying your debt or consider bankruptcy.

Another thing about credit counseling is that it isn’t free. Credit counseling agencies may charge monthly fees for their services, adding them on to your monthly payment. If they don’t, they have to get the money to pay their employees somewhere. That “somewhere” is usually from your debtors, as a percentage of your payment.

There is some debate as to how going through credit counseling affects your credit. It is noted on your credit report. In most cases, you can’t get new credit until you complete the program. But it could also affect you after your debts are paid off. Many lenders consider credit counseling as being similar to Chapter 13 bankruptcy.

And finally, it is imperative to check out any credit counseling agency that you are considering. Just like any other business, there are some that are not trustworthy. The Better Business Bureau is a good source of information on credit counseling agencies.

Credit counseling may be able to help you get your debts paid off. But it is important to consider the pros and the cons of entering such a program. Trying to work out a deal with creditors on your own may work, eliminating the need to get a third party involved.