There is nothing more stressful and more frustrating than finding yourself struggling to deal with all the debts that you have. Financial problems that stemmed from too much debt impacts every aspect of our lives. Because of this, people who are trapped in this situation often resort to extreme measures such as filing for bankruptcy just to make their debt problems go away.
When Debt Becomes a Problem
In good hands, borrowed money can go a long way and be of great benefit to the debtor. Irresponsible money habits, however, can lead anyone in financial ruin. Debt piles up too easily. Here’s a good example: if you’re using your credit card as a source of emergency funds or augment your monthly budget, then you may find yourself dealing with a debt problem soon because your spending habits have gone out of hand and you are relying on credit just to get by.
Imagine your ballooning credit card debt on top of your other financial obligations such as your mortgage, student loan, car loan and monthly household expenses. This where debt starts to become an overwhelming problem. When you’ve reached this point, you must quickly act and find ways to mitigate the problem before it’s too late.
How to deal with debt, let us count the ways
There are many ways on how you can deal with your financial problem that stemmed from debt. Let’s take a look at the ways on how one can get rid of their debt problem.
Minimum monthly payments
For most people who have unsecured debt, this is the way to go. You’re not incurring late fees and you are not being reported for delinquencies in credit bureaus hence, it is good for you and your credit score.
Or is it?
If you’re stuck in paying minimum monthly payments for quite some time now, you’ll soon realize that it is not going to help your situation at all. Here’s an example: if you have a $10,000 worth of credit card debt at 18.9% interest rate and you’re paying a minimum of $400 per month, it will take you 13 years and 9 months to pay off the entire balance balance, and a whopping $6,356.70 dollar will go towards the interest payment, assuming that you don’t add anything to your outstanding balance as you pay off your debt. That’s a long time and a lot of money that could be put into savings or emergency fund!
Minimum payments may seem like a good idea but it will have repercussions over time and can significantly affect your credit score especially if you’re carrying a considerable amount of debt.
D.I.Y repayment plan
The world wide web has a slew of finance blogs on personal finance management filled with budgeting tips, money hacks to save money, and how to be debt-free. While most offer sound advice, you will find that it’s not a “one size, fits all” thing, especially when it comes to debt. What works for one person may not work for another. This is because of our unique personal situation.
Coming up with your own debt repayment plan sounds like an excellent idea but you have to make a lot of considerations like your source of income, your household budget, the unexpected expenses that may come your way, and most importantly the size of your debt. If your debt is relatively small and you have a steady cash flow, then you may come up with your own repayment plan. But dealing with a huge amount of debt is a different story altogether. Say you have a $15,000 of unsecured debt in total. This amount can grow exponentially due to the interest and can be difficult to manage on your own in the long run.
Debt relief programs
Debt relief is defined as the reorganization of debt to give an indebted person partial or full relief from debt. There are various debt relief programs. Debt consolidation, debt management, debt negotiation, and debt settlement. Each works differently but the ultimate goal is to lift the weight debt off your back.
If you have $10,000 or more of unsecured debts and you are already 60 days behind your payments, then signing up for a debt relief program may be your best course of action. Most debt relief companies offer a free consultation that you can take advantage of so you can have a better idea how each program is structured, what are the benefits, and how your creditors will be paid.
Once your debt is paid under a debt relief program, it will reflect on your credit file as such for seven years. But unlike bankruptcy, Debt relief makes it easier for you to rebuild your credit thru the responsible use of credit cards and other loans.
Often seen as the last resort to wipe out debt and stop any collection proceedings taken against you by your creditors, bankruptcy will not only have a negative impact on your credit file for up to 10 years, it will affect your life as well. Bankruptcy will make it nearly impossible for you to take out any kind of loan, therefore making it hard for you to rebuild your credit as well. Not only that, if you apply for a job, your employers will also see that you have filed for bankruptcy.
The bottom line
Debt problems begin with irresponsible borrowing and mismanaging your finances. How much you actually owe will dictate how to best deal with the matter at hand. The smaller the amount, the easier it will be for you to pay it off on your own. But if the amount is too high, it will be best that you consult a debt counselor to get sound financial advice and have a solid action plan on how to solve your debt problem.
Once you get out of debt, stay out of it. Be wise and be responsible with your finances, particularly in managing your credit. Most of all, learn from the lessons your debt problem has taught you.