Two of the most significant steps for a strategic and proper debt management program are budgeting and negotiation. Whether you want to carry on with paying off your existing debts or want to take out a larger loan to consolidate all these into a single monthly payment, without proper budgeting you will hardly reach to your goal.
Budgeting will help you in many different ways that will be useful in formulating the best debt management plan. These are:
- It will help you to know about your income sources, all your assets, and liabilities including the expenses that you make every month.
- You will find that on proper analysis of your budget there are so many different areas in which you make unnecessary expenses every month.
If you consider giving these up by making slight changes in your lifestyle and spending habits, you will save a considerable sum of money every month which you can funnel towards paying off your debt.
Just like budgeting, another important point is negotiating with your lenders. There is no harm in asking the lender to lower the rate of interest telling them all about your current financial condition. in most of the times the creditors will feel the urgency in your to get rid of your debts and if the lower the rate by even half a percent, you will be able to save a considerable amount of money that you can use on repaying your debt.
Consolidating your debt
When you have a number of debts it will make management of debt a pretty difficult task. You may lose track of a few of your debts in the process and therefore miss on its payments. In such cases, the best way to deal with your debts is to consolidate your multiple loans into one bigger loan. This is because:
- It will be of a lower rate of interest as compared with the combined average rate of interests of all your current debts
- It will help you to keep track of your debt easily as you will have to on one debt instead of many and
- In case of multiple credit cards, you can transfer balances to a new card with a lower rate of interest.
If you choose to consolidate your debts then you will need to know a few facts and consider a few factors as well. You can take help from https://www.nationaldebtreliefprograms.com or other sites for that matter.
When you consolidate your debts, you do not reduce the total outstanding loan amount but only the number of loans. You will still owe the same amount of money to your creditors.
However, you will get the loan for a longer period of time since it will be now a single larger lump sum. That means you will have to continue repaying it for a longer period of time.
Consider the penalties and charges of foreclosure while taking on such a loan. Since financial situation may change dramatically without any notice and it not necessarily has to be bad always, there may be times when you will have enough money in hand to repay a chunk or even the entire amount of your debt.
However, creditors will charge you for foreclosing any loan because they will lose on their income in the form of interest on the entire amount for the entire tenure. Therefore, confirm with your lender whether or not you can pay your loan off early without penalties.
To make your loan consolidation effort fruitful, you will also need to be well organized and diligent. To ensure that you make your monthly payments on time, select the date according to your preferences and affordability. The best way is to choose a day very close to your payday. It will work well given your present financial situation.
Have a clear understanding
You must have a clear understanding when you enter into a debt consolidation loan. You must know how it will impact the debt reduction method will impact your financial situation and whether or not you are heading in the right direction to live a debt-free life.
- Start with prioritizing your debt as all the debts will not carry an equal rate of interest. Find out these rates, enter these in a spreadsheet, arrange them according to the weight and consider the highest interest carrying loans to consolidate.
- Choose the secured loans first as these loans carry high monthly amounts. When you pay it off you will have more money at your disposal to put in paying the next loan. Repeating this process, you will clear off all your debts fast and improve your credit score.
- Taking help of the credit counselors is also very useful consideration as they might be able to suggest you easy and effective ways to get rid of the situation. They will help in the negotiation process, in prioritization and making a proper plan for debt management.
- Apart from that, you must consider the age of each debt and the amount outstanding before you include it in your loan consolidation list.
Lastly, consider the debt consolidation options when you find yourself buried in monthly bills and want to get rid of it fast.
- Unsecured loans will not require any collateral such as a personal loan or a signature loan but if you have any issues with your credit then it will nix your ability to qualify for such a debt consolidation loan.
- Secured loans, on the other hand, will need collateral security of your car or home which you stand to lose in case you fail to make the payment.
- You may also take a loan from your retirement funds but be informed that the earning potential of your 401(K) plan will be compromised. Moreover, the IRS can award a penalty for early withdrawal.
- You can even ask your friends and relative for help or use your insurance policy as well if it permits.
If all roads are closed and you are ineligible for a loan, consider filing bankruptcy after consulting a bankruptcy attorney to know your rights and its consequences.
Terry Godier is an experienced and skilled business consultant and Financial advisor in the USA. He helps clients both personal and professional in long-term wealth building plans. During his spare time, he loves to write on Business, Finance, Marketing, Social Media. He loves to share his knowledge and Experts tips with his readers.