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Why It’s So Hard to Pay Off Debt – And What You Can Do About It

January 31, 2014 by illinois

Debt sneaks up on people. It’s easy to find yourself over your head. One purchase was affordable, so was the second. The third, fourth, fifth, and the interest payments on all of it makes money vanish before you know it. There is a whole industry out there to convince us that we need the newest thing, always, at all times. They don’t just sell us “items” like the newest cell phone, iPads or tablets and that giant TV that’s even bigger than the giant bigger TV. They are selling consumerism itself and all of it can be financed with the swipe of a card. Easy – Right?

That easy part is why it’s so hard to pay off debt.

Price, Interest and the Real Cost

When we take out a student loan or a mortgage for a new house, we see the final cost on the last line when we sign. We’re used to that and it becomes part of our financial planning. That’s not true when we take out that credit card and even when we think we’re getting a great deal on that giant TV, that’s not the price we are paying. A few great deals down the road and we’re committed to bills that add up to $500, $600, $800 each month. That’s a lot of money gone from our monthly income. Over the course of time, a few hundred dollars turns into thousands and we’re behind the eight ball.

Credit cards aren’t just there to make things easy for you. They are there for lenders to make money. The interest you pay is why they are interested in you. They are a useful tool and can help you get the things you need or want, but only if you stay in control. Lenders don’t care about your control. They care about the money they will make from you.

We Feel the Pain, But What Can We Do About It?

Whether we weren’t being responsible or we thought we were, debt snuck up on us. We know why it’s so hard to pay off debt, interest is killing us and the longer we pay, the more everything costs. The real question is how to pay off debt and get back to living a solvent life.

Like everyone else, you have a limited, defined amount of income. The first step is to understand how much you’ve got coming in and how much you’ve got going out each month. There’s no doubt about it, you need a plan.

Some people think they don’t need a budget. Forget that. You do. Understand your monthly income, your living needs and make a realistic assessment of what you owe.
Stop making only minimum payments wherever possible. The minimum payment is the creditor’s way of making sure you will pay the highest possible price for whatever you bought. Yes – you will continue to make your bills (unless you are in even deeper trouble), but you will pay off debt over a period of years! No one gets ahead of anything on minimum payments.
If you cannot make higher payments (say on a credit card) at the time payment is due, make that minimum and see if you can’t make an extra payment between due dates. There are a number of benefits to doing this. You will of course pay off debt faster, but what most people don’t understand is that the extra payment will go against the principal and the interest you will pay on the following bill will be figured on a lower amount. Doing this throughout the course of the year will save you a ton of money!
Assess your bills and assign priorities. What are your highest monthly bills? If you can make an extra payment on them, you will save the most since that interest is costing you more. Do you have one or more bills that are lower and might be “retired?” Nothing feels as good as reducing not just the money you’re paying, but reducing the number of bills you have. It’s an accomplishment! It will be a big help in making you feel good as you pay off debt.
You’ve made a budget. You know what money you’ve got. It’s time for some life adjustments. Cutting out the things you want so you can take care of the things you need can be a little painful, but it’s not like losing what you need. There is plenty you can do. Gone are the lunches out and triple-sized lattes. Make a decent shopping list, eat at home and buy the food you need to take your lunch to work. Spending $.15 to bring your own coffee to work is great. Spending $5.00 a day can mean making a credit card payment each month.

Prioritizing Debts and Bills When You Have Limited Resources

April 19, 2013 by illinois

What do you do when you have limited income and a mountain of bills and debts to pay off? That is a very stressful situation to be in. How do you choose which payments will be sent off or ignored?

When Americans started to lose their jobs, a lot of them were placed in this predicament. It is not an easy decision to make because both your bills and debts are important expenses that you have to spend for.

But if it comes down to choosing, of course you need to prioritize your bills. However, it has to be scrutinized to make sure that the bills you are paying for are down to the bare necessities. For instance, your living expenses will include your food, groceries, utilities and gas. If you are renting, you should also prioritize this. The idea is to pay for the bills that consists of things and services and you need to live comfortably.

Your debts will be second to this but you have to rank them according to priority as well. Secured debts are important because defaulting on payments could endanger your collateral. Unsecured loans will be on the lowest part of your list – even if some of them have a high interest. If you can keep up with the minimum payments, you should try to reach that amount at the very least.

Ultimately, you know that if your income is no longer enough to support your current bills and your debts, something has got to change. You need to rethink your lifestyle and lower it down to a level that your income can afford to support. If that means living in a smaller home or selling your luxury car to get a second hand one, that is what you should do.

As you lower your bill payments, you should also do something about your debts. There are debt relief options that can lower your balance significantly if you follow the rules correctly. Or you can consolidate your debts to make payments more manageable and to possibly have a reduction on your interest rate.

Debt management is a legitimate way of dealing with debt problems – especially for consumers who are in need of lower monthly payments. With the help of a debt counselor, they will create a debt management plan that will guide you through the tough sacrifices that you have to make as you pay off your debts. This plan will be based on the amount that you can afford to contribute on a monthly basis – regardless if it is smaller than your current. They will stretch your balance over a longer period and present this to the creditor for approval. The negotiation will concentrate around the lower monthly payment and a possible lowering of your interest rate.

Sometimes, all the decrease and budgeting and the debt relief program may still not be enough. If so, then you should probably increase your income. There are various work from home careers that you can explore. You can even look at your hobbies to see if you can earn from them. As you increase your income, you can loosen the restriction on your budget and make bigger debt payments. Any of these options, alone or combined, can help you ensure that every payable will be well funded.

How Debt Management Can Save College Students From Financial Ruin

April 14, 2013 by illinois

Statistic.com reports that the average college student is currently suffering from an average of more than $3,000 worth of credit card debt. These are all undergraduates who have yet to get a job to support themselves. In fact, study shows that 20% of young people within the age of 18 to 14 have debt troubles.

This is not exactly the type of future that we want our children to have.

Even before they become financially independent, these individuals are already suffering because of bad financial decisions. One thing’s for certain, college students are in dire need of monetary instruction.

This is actually where debt management becomes the best option for debt relief. The benefit of having a debt counselor assist you is the access to their financial expertise. Based on their training and extensive experience, you are sure to get valuable advice as to how you can get out of debt. The best part is, the credit counseling agency that they belong to have training programs to help you develop financial management skills. At least, this is true for legitimate agencies – which is why you need to exert extreme caution in choosing the third party company that will help you. The good ones do not only offer to help you pay off your debts, they will also teach you how to never land in the same situation ever again.

The alarming statistics about college students are doubled because the credit card debt is usually a result of unnecessary expenses. They need to understand that wise spending is an important trait to have because it will allow them to put their future incomes on priority allocations. If you couple credit card debt with student loans, graduates will have a lot of debts to deal with even before they get their first paycheck.

By enrolling in a debt management program, college students will be given a debt management plan that will allow them to afford their monthly credit contributions. They will have the guidance of an expert to keep them from failing with the consistent payments that is required by their payment plan. Not only that, this debt relief option will not harm their credit reports. Being as young as they are, a good credit standing is needed – especially when they start looking for jobs. Employers look at a good credit rating a a sign of a responsible individual.

College students should be made to understand that while credit cards can help them with immediate purchases, it has to be paid back. They also have to know the high costs involved with credit card debt. The high interest rate, finance charges and late penalty fees make up for a hefty payment on top of what is originally owed. While parents can still bail them out at this point, they should be taught the right financial management skills that will mold them into more responsible adults. Giving them the freedom to spend on things that they want should be coupled with the responsibility of paying off what they owe. Parent can give them a budget every month and at the same time teach them how to stick with it. Proper financial management should start early so it is not difficult to follow as they age.

What Is In A Debt Management Plan

March 28, 2013 by illinois

A debt management plan is one of the tools that you can use in your debt relief efforts. However, unlike a budget plan, this is exclusive to the debt management program.

Any project or endeavour can be best achieved if you have a guide to help you every step of the way. It helps you put things in perspective. It gives you directions especially during confusing times. It also reminds you of how far you’ve come since you started and how long you have to work before you reach your intended goals. All of this and more can be enjoyed when you create the right debt management plan or DMP.

Debt management programs are usually graced with the presence of a debt counselor. They are there to help you analyze your financial standing so that you can create a realistic DMP. You can expect them to take the lead as to what component should be included in this plan. But for the sake of knowing, let us discuss the various details included in a debt management plan.

First of all, it contains the details of your debts. Of course, we only mean the debts that can be enrolled in a debt management program. These include your credit card debts, medical bills, personal loans and other unsecured debts.

You need to list all these debts, their respective creditors, the current balance, the minimum payments, monthly due date and the interest rate. There may be other details that will be specified by the counselor but these are usually the salient debt details.

Once you have all these details, you will divide it based on your preferred payment term. For instance, your $10,000 debt can be stretched over 5 years or your $2,000 debt can be stretched over 2 years. That depends on your financial capabilities. The only limitation is you cannot go over 5 years. This is done to arrive at a lower monthly payment because you have stretched it over a longer payment period.

To know your financial capabilities, you need to analyze your finances to see how much you can afford to pay for each debt. The disposable income refers to what is left of your income when the basic expenses have been paid off. You need to maximize it by lowering your expenses or growing your income.

It is advised that you put aside a sum of money for your savings. It is probably best not to tell this to your counselor as they may demand that you put it into your debt payments. Although some may advise you to set aside an amount on your reserve anyway – which is a sign of a good debt management company. It shows that they are concerned about your overall financial health and not just your debts.

When you have completed all the details, you will see a lower monthly payment and the maturity date of your new payment term. This is what the counselor will show your creditors. They will negotiate with them to accept the lower monthly amount – with the condition that you will not miss out on payments. This is why you should consider the details of the DMP carefully to make sure that you can really afford them.

Once approved, you will send a single payment towards your counselor who will distribute it to your respective creditors. While your accounts are enrolled in a debt management program, you cannot use them so the chances of you incurring more debts will be kept from happening.