The exercise of getting out of debt is never easy in the absence of a lottery win or another unexpected windfall. There are differing ideas about how best to do it, especially if you have a number of financial liabilities. Which one do you pay off first or do you try to reduce your indebtedness across the board, a little off each of those liabilities at a time?
Logically you should pay off those liabilities that are incurring the highest rate of interest first because that saves you money in real terms, or should you? If you think for a moment perhaps you will be more motivated and determined if you approach the problem in a different way? You may be getting demands from ten different companies. Those where your debts are relatively small, maybe half of them, would stop if you cleared these small accounts first. Suddenly the number of distressing letters you are receiving will halve. That is a psychological boost even if the amount you have paid off is relatively insignificant.
The proponents of repaying debt in this way argue that you need motivation and reducing your debtors in this way provide some immediate ‘victories’ on the long road you are facing. The list of ten by name suddenly becomes five even if you may not even have cleared 10% of your debts.
Plenty of Advice
There are plenty of people offering you advice on debt. The recession increased the number of people in financial trouble hugely. Even though the US Economy has improved and unemployment statistics have returned to pre-recession levels that does not end the matter. The Federal Reserve for example produced statistics to show the number of people struggling with credit card debt; it is significant. The average debt on credit cards alone amongst user identified to be in trouble averages at over $15,000. Even paying the minimum monthly repayment is inevitably difficult and hardly reduces the sum of the balance to any extent. The balance becomes core debt that simply does not go away without firm thought and action.
During the time when real estate prices were on the rise year on year such balances could be paid off in a variety of ways including re-mortgaging where there was increasing equity in the property. More commonly people were able to switch to a different card offering 0% balance transfers for a specified period. The problem was the rate that would be applied once that period finished.
The Environment Has Changed
Post-recession that route is largely closed. The best way to get rid of a stubborn credit card balance is to take out a personal loan. The interest rate, even to those with a poor credit score, is far lower than credit card companies will be charging. Such loans are more readily available than you might think as long as you can demonstrate a regular income. If that income can justify a loan in that it appears you can afford the monthly instalment payments for the full term of the loan then you are very likely to be approved immediately with the money transferred to you within a working day.
The Internet is today’s main marketing tool and it is on the Internet where you will find good lenders that explain what they can offer and the terms and conditions involved. While those with a poor credit history may be charged a slightly higher rate than those with a good credit score there is no reason why applications from everyone with a regular income will not be approved.
Such quick realistic loans will only help you get out of financial trouble if you have the self-discipline not to use a credit card to buy things in the future that you cannot pay off in full at the end of the month. The instalment loan payment is supposed to replace credit card payments in the expenditure column of your monthly budget, not augment them. It is unlikely that you will have scope to pay both in the coming months unless you begin to receive significantly more regular monthly income.
Ideally a loan should be able to cover all your debts; this is why it is called a consolidation loan. There will obviously be people who cannot afford a loan to pay off everything else even though it would significantly reduce your monthly outgoings. Lenders obviously want and need to make profit no matter how sympathetic an ear they have. In these circumstances you will need to make choices about what you can pay off and whether you will begin to be in control of your finances as a result. Doing nothing is not an option because problems do not just disappear by magic. The Internet has all the information you will need and from there you must make the best decisions to suit your circumstances.
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.