Debt is a four-letter word. It happens to be one of the biggest issues facing society today. Making efforts to pay off your debts should be at the top of the financial priority list ... yes, higher on the list than investments and higher than padding your savings account. Why? Interest rates - plain and simple.
Paying off high interest rate balances will serve you better than socking away cash in a money market account because, over time, that debt will grow and all your efforts to save money will be thwarted paying off the larger amount.
So, what can you do to make sure you're making a dent in your debt? Pick a plan you can stick with.
Debt investments
Question: Growing debt is a major issue for people in our country, but why is paying off debts more important than putting money into savings?
Answer: Paying off high interest rate balances will be saving you money in the long run. What good is a savings account if every penny will go to paying the collections agency for that overdue credit card down the ling? If you have a high interest credit card, concentrate on paying it off and keeping it only for emergencies. Your credit will improve and you'll be padding your pockets at the same time.
Know the limitations. You can still save even while paying off high debt. If you're unaccustomed to saving all together, you should try and develop the habit. Start by trying to save your pocket change. Keep it in a jar until you believe the amount equals a number worthy of a bank deposit.
If you have the opportunity to participate in a retirement plan at your place of business, by all means, take it. You can set aside a small percentage of your paycheck toward your retirement fund. However, you should concentrate more intently on your high interest rate debt. Once you've made a dent in your debt, you can increase the percentage you save toward retirement, not to mention other savings.
You can't dig out of a hole.
Question: Lots of people dig out of debt but end up back where they started later down the road. Doesn't it seem reasonable to cancel credit cards even if it hurts your credit score?
Answer: If you have a problem controlling your plastic, then yes, remove the temptation by getting rid of the credit cards. If you can manage keeping your cards in a drawer and only using them for emergencies, then try that tactic. The most important thing is that you know what your specific problem areas are and address each one accordingly.
Everybody is different and all the issues are unique. Some people have problems with credit cards; others are in debt from medical bills or student loans. Because every problem is unique, it's important to recognize that every solution must be unique. The biggest thing you should remember is that 'you can't dig out of a hole'. In other words, don't' trade one debt for another. That's a no-win situation.
The ups and downs
Question: Would ditching credit cards make my credit score go down? If overusing credit cards is my problem, what will be worse - the credit dings from overuse or the dings from canceling them all?
Answer: Nearly one third of your credit score is based on the debts you have incurred. If you have a lot of debt, your credit score may already be affected. You should worry less about harming your credit score, and more about fixing your debt, because in the long run, the debt will hurt you worse.
People generally think that paying bills on time is the mark of a financially responsible individual, but that's not always the case.
You have to face facts and determine whether the trade-off is worth it to you. If maintaining your credit score will cost you thousands due to high interest rates, it may be worth the few points it will cost you to get some credit counseling to help you pay down your debts.
If you bite the bullet and get the help you need to tackle your debt, your credit score may be dinged, but taking into account the big picture, you will pay significantly less because you will have tackled the debt, and the interest payments it incurs.
Try to see it from both angles; will it cost you more to lose a few points toward your credit score or will it cost you more to keep all your debt?
Your credit rating will effect more than just credit cards. Your mortgage rates, auto loans, insurance premiums, even your ability to get a cell phone package will all be affected by your credit rating. But, even if you sacrifice a few points in credit, the cost is typically much less than you would pay in interest by neglecting to pay off debt.
Getting on the Straight and Narrow
Question: Does 'biting the bullet' and sacrificing credit points mean that I have to file bankruptcy? Isn't that just for extreme cases?
Answer: For some people, bankruptcy is the answer, but that's not always the case. There is more than one way to handle this situation.
If you have the discipline to make extreme changes and pay down debt on your own over the period of two to three years, by all means, take that route. If you feel you don't have that discipline or the monetary sufficiency to go that way, talk to a credit counselor. Just remember, credit counselors do charge monthly fees.
If you have significant debt, consider talking to a bankruptcy attorney. Your credit will not be affected by the visit and you will learn what it really means to file bankruptcy and whether or not it's truly necessary in your case.
Another possibility for getting rid of debt is a debt settlement. If you choose to go this route, investigate the companies you choose to enlist and make sure you're dealing with credible organizations. Believe it or not, it is possible to settle debts for less than you currently owe. After that, all you have to do is concentrate on rebuilding your financial future.
Debt settlement, really?
Question: How do you determine if debt settlement is right for you?
Answer: The majority of people are dead set against filing bankruptcy and they will make every effort to pay back what they owe. That's when debt settlement becomes an option. If you'd rather die than file bankruptcy, you might want to consider debt settlement.
Try Zipdebt.com by Charles Phelan. Phelan used to work in debt settlement and now teaches others how to do it themselves. The program is a little pricey, but might be well worth it.
Bankruptcy
Question: Is debt settlement better than bankruptcy?
Answer: You can't settle current debts such as your home equity loan. That means you will have to be delinquent on your accounts in order to even consider debt settlement. That said, both debt settlement and bankruptcy have a negative effect on your credit. A Chapter 7 will be on your report for ten whole years. Debt settlement and the collections reports associated therewith will stay on your credit report for seven and half years, the negative consequences for these scenarios are about the same.
The good news is, with both, after the negative time frame ends, you can begin rebuilding your credit - the effects of your choice will not be permanent.
Get some help Question: Any final thoughts?
Answer: Being in debt is problematic for all involved. It can isolate you from others and leave you feeling a little hopeless. Well, ask for help. You will need some motivation and someone to bounce questions off of. It helps to have someone caring on your behalf.
What better time than right now to explore and learn more on the subject of secured loan home equity. It's time for a better insight on everlife.com.
by wjtrader
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