Bad debts are not something you pick up intentionally. One minute, everything could be rosy, but in the space of a few months and several missed payments, everything can seem very scary indeed. It can often start a cycle that ends up with you being stressed, under extreme pressure, and worried about your future. You could also end up paying back a lot more than you had borrowed in the first place.
However, no situation is completely irredeemable. Despite the consequences of bad debts seeming like they will last forever, the truth is that you can tackle them. And, the harder you try, and the quicker you get started, the better your situation will be. Here are five ways you can ease the pressure of bad debts and begin to get yourself back on your feet.
Bankruptcy is the most extreme action you can take when you have bad debts and isn’t something to be taken lightly. Despite the fact that it gives you an opportunity to start again, it can have implications on your finances for the rest of your life. Not only will you struggle to get a mortgage or credit or borrowing, but you will be stripped of all your assets. Because of this, you should always seek advice from a debt counsellor before setting the bankruptcy wheels in motion.
Debt Management Plan
Another alternative to bankruptcy is to go on a debt management plan. This is when a third party takes the reins on your behalf and negotiates with your creditors. Between them, they will come up with a payback plan that suits the budget you have builtand appeases the creditor. You can also do this yourself – but unless you have a natural ability to bargain well, it i best left up to a debt charity.
However, there are a few things to think about when it comes to debt management plans. First of all – and most importantly – they are only agreements that have no legal standing. That means that the creditor can cancel the contract at any time and demand full repayment. While it is unlikely they will do this, you should be aware that they can if they wish. Also, your creditor is entitled to change the terms any time that they please, and will do so if your financial situation improves. Finally, it will be marked down on your credit report until you have paid the entire amount.
Seek out a credit counsellor to act on your behalf, or, if you have the confidence, you can contact your creditors directly. For those wanting less stress, the first option is perfect. For those who wish to save money, the second option is much more preferable. But how do you do it?
Make a list of all your debts and rank them in order. Target the most expensive debts first and work out how much money you have spare to pay them back. As those debts decrease, you will find that your money is paying back more of what you borrowed, and less of the interest you charged. And, once the worst debts have been paid off, you can use the same money to pay off your cheaper debts. The point is that once you get started, there will be a snowball effect, and your debt will decrease quicker as you go down the line. However, you will need to bargain with your creditors, which we will take a look at now.
Getting In Touch With Your Creditors
It’s important to contact your creditors as soon as you hit problems. No matter how long you leave it, the problems aren’t just going to go away. You will find that when you contact your creditors they will be empathetic to your situation, but don’t be fooled that they are concerned about your welfare. They just want their money back, and the best way to do that is with a receptive customer.
However, you can use this to your advantage to strike an affordable deal with them. Be honest about what you can afford to pay back and most creditors will be happy to set up a payment schedule. They may even stop interest charges on your account, which will save you money in the long-term.
Debt consolidation isn’t the best way to go about things, but you can use this type of loan wisely to get yourself out of trouble. There are a few things to think about, however. First of all, find a lender who is open and transparent about what they offer.
Also, you should only get a consolidation loan if you know you will qualify for the entire amount of what you already owe. If you are struggling to stay on top of your finances, then a big part of that is likely to be the number of creditors that you owe. So, unless you can pay off everyone in one hit, a debt consolidation loan is only going to leave your finances in a mildly less messy state. And, with the interest charges involved, it may not be worth it.
We hope this has helped. Until next time!