Debt Management Solutions - Personal Finance Post

Post Updated 7-2-22

Debt Management Solutions is here to explain the following –

Debt has a way of creeping up on you, if you are not careful and allow it. It’s important to keep debt at a reasonable and manageable level. There are several debt management solutions we will talk about here for your review.

You do not want to end up incurring insane interest charges and scraping to make payments. Even for those who manage debt well, unexpected life changes can result in difficulty making ends meet. Being in debt is not always about being careless. The unforeseen issues of life happen to everyone at some time.

When we find ourselves having problems with debt, the first course of action is to take a look at the budget. Finding ways to cut back on unnecessary expenses can help us pay down debts and keep monthly bills current. But what happens when we can’t solve our debt problems with budgeting?

Sometimes we need outside help. It’s hard to go to someone else when you’re having money troubles, but if you don’t gain control over your debts, your credit rating will suffer. So it’s important to take charge before it’s too late.

Debt Consolidation

Some people turn to debt consolidation as an answer to debt problems. It can be good but there are also parameters that should be thought about carefully.

There are options online for transferring high-interest credit cards to a lower interest credit card, normally in this case your credit score must be acceptable.

Sometimes it is safe and permissible to use the equity in your home to get the money to pay them off. While these options can provide lower payments, they do not work for everyone.

All of this has certain aspects to consider.

We will discuss this below.

What You Should Know About Credit Counseling *who offer debt management solutions

Another popular option for some with debt problems is credit counseling. There are drawbacks to this also, but sometimes you have no other choices.

Credit counseling agencies offer help with budgeting, and in some cases, they will set you up with a debt management plan. A debt management plan involves negotiation with creditors to obtain lower interest rates and lower payments. The debtor makes one monthly payment to the credit counseling agency and the agent forwards payments to each creditor.

A debt management plan can help you get out of debt, but it can also impact your credit.

A note is added to your credit report stating that you are undergoing credit counseling. This means that you can’t get new credit. However, the notation is removed once you’ve paid off your debts.

*Note: I do not officially recommend this type of credit management. Often you are paying lower payments and if not set up correctly with the debt management company, your payments may show a default or late payments. Be careful with this option.

Make Sure Your Counseling Agent Is Reputable

It’s also important to make sure you’re dealing with a reputable credit counseling agency if you choose to follow this method.

Some charge high fees or fail to make payments to creditors on time. There have also been some that were found to be outright scams, keeping the money that debtors sent them to pay their bills with.

When considering credit counseling agencies, make sure they’re members of the Association of Independent Consumer Credit Counseling Agencies (AICCCA) or the National Foundation of Credit Counseling (NFCC). These organizations regulate and monitor member agencies, making sure that they operate legally and ethically.

An overabundance of debt can wreak havoc on finances and credit scores. It can also be the cause of undue stress. By seeking help at the first sign of trouble, it can often prevent our debts from spiraling out of control.

Some Ways to Pay off Your Credit Card Debt

If you’re disgusted with credit card debt, it makes sense that you want to pay it off. The faster it is paid off, the better. It is not necessarily an easy or fast process, but the sooner the better. Then you can focus on trying to save money.

However, paying it down fast may not be your primary goal. You may, instead, look to pay it down one step at a time, which is what most people have done.

Initially, the first step is to stop charging on the credit cards and pay in cash. If there is not sufficient money to pay in cash, then it is definitely time to stop charging. The debt can surmount into something unmanageable if the latter is not done.

Paying off credit card debt isn’t the same for everyone. It depends on your balance, and the funds you have left over after paying your necessities. However, one of the best methods to pay off your credit card debt is your ability to make more than the minimum payments required.

It can happen if you put your mind to it. You may have to sacrifice something else, but in the end, it will be worth it.

See This Post – Beware of These 7 Financial Mistakes

Use Your Savings

Not every individual will agree to this, but if your debt is becoming hard to maintain, this may be a good choice. If you have a savings account, take a look at the amount of interest you’re earning on that money.

Now take a look at the amount of interest you’re paying on your debt. If you’re paying more than you’re earning, consider cashing out some of your savings to pay off your debt.

Wipe away your debt and then you can once again focus on building your savings. If you’re not making monthly credit card payments, you will be able to focus on rebuilding your savings even better than before.

I would never suggest liquidating your entire savings plan. You need savings to counter any issues that might pop up, such as being without one income.

Reserves should be at least six months, if not more. In today’s economy, not knowing what the future holds, 12 months would be more sufficient. We have learned a lot in the past year.

Debt Consolidation With Installment Loan-for debt management solutions

Next, you might want to see if your lending institution can get you qualified for a debt consolidation loan? If so, at what interest rate? Compare the interest rate of a loan with the interest rate you’re paying on your credit card debt.

Compare the rate with other banks. Most often you’re paying credit card companies much more than you’d be paying a bank. They would also give you an installment loan with a set payment of principal and interest.

These even payments will help with paying off the debt quicker in an established amount.

That being said, make sure once you’ve paid off your credit card debt that you cut up those cards.

If you run up a balance on them, then you’re paying back a loan and paying on your credit cards again. You have defeated your purpose.

Home Equity

This is not always a smart move, however, if you are limited to the above services, home equity loans can be an option in your debt management solutions.

How much equity you have in your home, interest rates, and current value on your home are also what must be considered. In other words, what is your current loan to value ratio?

Home equity loans usually have a flexible interest rate and payment. If you do not pay a fully amortizing payment when the term is up, you will still have a balance. The interest rates are lower than fixed-rate mortgage loan rates. That makes it even smarter to pay a principal and interest payment and pay it off early.

My suggestion for a home equity loan is to only get a fully amortized loan, to make a principal and interest payment.

Additionally, a portion of the interest you pay on a home equity loan is tax-deductible.

However, like a debt consolidation installment loan, you’re in danger of running up your credit cards again and paying on two loans simultaneously, if you do not discipline yourself to do differently.

Just Paying It Off

Finally, this is one of the best solutions if at all possible. Consider cutting back on your expenses and paying more than the minimum balance or a certain amount to the principal of the loan on your card each month.

This is often the most effective and wisest way to pay off your credit card balance.

To do this without making more debts you could consider getting a second job. Now, more than ever opportunities are available. We talk about this on this page.

There are job opportunities online. Consider some online sources for writing online or working on Social sites to make additional money. The faster you pay off your credit card debt, the more freedom you will have financially.