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Ever Wondered Why Some People Find It Difficult To Get Out Of Debt?

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Every person suffers a financial crisis at different times in their life, what matters most are the decisions we make to stabilize at these critical times. We also have always to maintain sufficient funds to pay regular bills and daily expenses. Most people prefer taking debts and loans, whatever the decision you make it must have a viable payment plan and within your financial discipline as well. Otherwise, you will never have enough get out of debts or start an investment.

get out of debt

[Read: Things to Know About Debt Negotiation]

Factors to consider before taking any debts

A good debt should not only stabilize you financially, but it should also enable you to pay any existing debts and allow you to avoid any debts in future. To establish a tactical debt plan, several important factors you must consider. To determine your most viable debt plan, you need to achieve a proper balance among these factors. These factors include:

  • Your credit score.
  • Your monthly total income and earnings
  • Your total monthly expenses and outstanding bills
  • The debt’s total interest and payment duration
  • Your outstanding debts and loans if any

Having known the important factors that affect your debt’s viability, it is necessary to maintain an updated and real debt record. If you are currently struggling under a mountain of debts, you must be suffering consequences of a negative mindset. Unless you adjust to a positive one, here are five reasons that prevent you from getting out of debt.

  1. Unplanned or undocumented spending

Some people spend extravagantly beyond their optimum budget numbers. If you are among this lot, you need to adjust. If you don’t match your budget to your income, you will find it boring, dumb, and restricting. Indeed, if you don’t budget you’ll always find it difficult to balance your income to your expenses and might never get out of debt. Whenever you consult your bank account, it will always seem a crapshoot with insufficient funds. If you excuses to budgeting are about tediousness, you are yourself to blame since several free software like PowerWallet are available to make your budgeting hassle-free. This software does everything for once you input your monthly income and expenses.

  1. Shopping for fun

Once you spending habits become a form of recreation, you will probably spend your savings to the last coin. Without a significant disposable income, you won’t have much to afford this lavish spending habit. Most people of such lifestyle will buy any they like without considering its essence or cost. By doing extensive research on the prices of goods in different stores before purchase, you will not only spend less and save more, but you will also get quality products on each purchase. That way, you will never get into credit card debts.

  1. Choosing wrong friends or partners

Evidently, it is always hard for anyone to advance if they follow a multitude with everyone trying to outshine others. You will certainly spend more trying to keep up with such friends. That does not mean ditching your friends; instead, you should reason rationally to choose real friends to spend time with and avoid those that are always competing to outshine you. Your real friends will always appreciate you even when you can’t afford their lifestyle.

  1. Having a tendency to postpone things

You are doomed to downfalls if you always have excuses for failing to budget your money. Do not wait until the holidays ends or you get a better-paying job so that you draft your budget or clear your debts. Or hope to stop spending if you buy evolving products. You will never get a perfect time. Smart budgeting demands that you prioritize the basic needs first and the others to follow. You will always be in debts as long as you keep postponing things.

  1. Living devoid of character

If you are too lazy, weak or extravagant chances are when in debt you tend to accumulate more debts. From my past such experiences, I have learned that we should always be optimistic about our debts regardless to the extremism of our situations. Whether the reason for the debt was a hospital bill, receding economy, or inflated housing market, we should always be responsible for our actions. Taking responsibility means that everyone should accept their actions and react responsibly to the consequences. This situation does not apply to those living in poverty; rather, it applies to those who have suffered a catastrophic experience like a total disability that pushed them beyond their ability.

[Read: What Are Your Debt Repayment Options?]

You hold the ultimate decision

Usually, people face problems that exceed their current financial capacity. In such a case you are forced to borrow a debt in order to meet these demanding needs, however, before getting into debt, you must reason rationally. This process involves examining your ability to recover the debt without getting into more debts. Once you conclude that the debt is viable enough and accept the debt’s terms, you must act responsibly by paying your debtors in time. That way, you will win your debtors’ trust and live in financial freedom.

When Is Debt Management Better Than Debt Settlement?

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Debt management and debt settlement are both effective ways to get out of debt. They each have their pros and cons. If you are torn between the two, you need to know your financial capabilities in order to make the smart debt relief decision. It is not about how much you can save but more of what you are willing to sacrifice to get to your intended financial goals.

When Is Debt Management Better Than Debt SettlementIn most cases, people are focused on getting as much savings from their debts. This is why debt reduction is sweet music to them. If that is important to you as well, then debt settlement should be your first choice. However, debt freedom is more than just paying off what you owe and getting the most savings out of it. In some cases, paying for your debts in full is more beneficial in the long run. And if your problem is the high monthly payments, debt management can help solve that.

Here are some reasons why debt management may be better than debt settlement.

Takes better care of credit score. If you have plans for your future personal wealth and you know that you need financial aid for that, you need to take care of your credit score. Debt settlement can ruin your score because you will be asked to default on your payments to prove that you are in a financial crisis. This is something that you do not have to do in debt management.

Creditors are more inclined to cooperate. There is no debt reduction in debt management so you can expect that creditors will be more cooperative. Also debt management companies usually have an agreement with creditor already. You are relying on that relationship so that the creditor can allow you to make lower payments every month. This is not so true in debt settlement. You will be haggling with them so they forgive a portion of your debt. That means less profit for them so they will be fighting you every step of the way – or at least make it difficult to arrive at an agreement.

Will not cause as much in service fees. This is actually a tricky issue that can go either way – depending on your debt amount and the settlement agreement. Debt settlement companies usually charge depending on how much debt you enrolled. So if it is a big amount, you can expect it to be quite big as well. The average service fee is 20% and if you have $7,500 in debt (which is the minimum amount that settlement companies usually require) that means the service fee is $1,500. But if it is bigger like $30,000, the fee will be $6,000.  In debt management, the government placed a cap of $50 every month. If you complete the 5 years, you end up paying $3,000. Do the math before you really decide which program is best based on their service fee.

Any saving will not be taxed. In debt settlement, any debt forgiven that is above $600 is considered a taxable income. Although you can request from the debt collector that the amount you saved should not be taxed, there is a chance that they will not agree. So be prepared that the forgiven amount on your debt will be taxed. In debt management, since there is no reduction, there is no taxable income.

Although this paints debt settlement at a disadvantage, you still have to realize that the lack of debt reduction in debt management will require you to have a steady income to afford payments. Debt settlement will take 4 years or less – depending on how fast you can come up with the settlement amount. In the other debt solution, you have to follow the structured payment plan that was created for you – which will take as long as 5 years. Make sure your income will not falter within this time because creditors will be very strict about you meeting your payments.

So do not close your doors on either of these programs – just look at your finances and be honest about what you are willing to sacrifice in the long run.

Don’t Let Your Hobbies Eat Up Your Budget: Earn From It!

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Don't Let Your Hobbies Eat Up Your Budget Earn From It!Hobbies usually eat up your budget but if you think about, it can also be a great way to earn you some extra money. If you are in debt, you need to increase your income. It doesn’t mean you should forego debt help. You can combine debt relief with growing your income. It will be a lethal combination to help you get out of debt without damaging your financial reputation too much.

The thing about some debt relief options they have the possibility of ruining your credit score. However, if you choose debt consolidation, you don’t have to worry about it. You will still end up paying for the whole balance so that is not noteworthy in your credit report. If there is debt reduction, then the creditors will report it. But since there is no debt reduction, you need to have ample income to support it.

The single restructured payment plan of debt consolidation will allow you to make lower monthly contributions because your balance is stretched over a longer payment period. And since your debts are consolidated, you don’t have to spend too much time monitoring it and making sure that everything is met. That will free your time to increase your income. And given that you have a longer payment period, you need to ensure that your income can support it. That calls for a supplemental income.

Your hobby can be a great way to earn money. Think about it. Earning more money requires you to work harder and longer hours. If you can work on something that you love to do, then it will not feel like work at all. So the question is, how can you use your hobby to earn?

Arts and Crafts. If you have this talent, you can teach part time in art classes. You can also create pieces and sell them in a gallery or online.

Writing. Set up a blogsite, get advertisers, build up traffic and you should be able to earn through commissions. You can also write an ebook and sell it online – which is a great passive income. Or, you can look for clients who are searching for web content writers and get paid for every article or content that you write for them.

Photography. Being a freelance photographer is useful for both print and online publications. You can also sell your best photos online – like an ebook, it is another form of passive income. You can also partner with a videographer and cover small events and intimate gatherings. Usually, celebrations and parties happen after office, weekends or during holidays – that means it doesn’t have to interfere with your day job.

Sports. If you are a sports lover and you have adequate experience in a particular sport, you can be an umpire, coach or a trainor. You can conduct a small sports camp every summer to teach children in your neighborhood about the sport that you know.

Animal care. If you are an animal lover, you can offer to care for pets. If you have a sizable backyard and you can set it up as a pet hotel, you can take in boarders for pet owners who will go on a lengthy travel.

Cooking/Baking. If you have a knack for cooking, you can teach others your dishes, be a small time caterer for small events or you can sell your food in weekend markets.

These are only a few of the hobbies that you can use to earn extra money. You just have to be creative about it and you can find great way to grow your income without it feeling like work.

Don’t Ignore Credit Card Debt And Just Consolidate

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Ignoring your credit card debt is probably the worst that you can do. If you really want to remove your debt problems so you can live in peace, pretending it does not exist should not be one of your options.

Don't Ignore Credit Card Debt And Just ConsolidateThere are so many things that will be affected when you refuse to acknowledge your card debt. First of all, the interest and late payment penalties will continue to pile up and grow your debt amount. If you started with $5,000, it can grow to $10,000 if you refuse to pay any amount towards it. Even if you stop using it, as long as it has a balance, the card debt will continue to grow.

Your card debt also ruins an important part in your life: your credit score. If you had plans of setting up your own business or buying a house, your credit card debt will keep you from reaching these goals. Your credit score reflects your attitude when it comes to your finances. Even your employment opportunities, rental option, business partnerships and loan interest rates will be compromised with a bad credit score.

Fortunately for you, there is a way to solve your credit card debt and that is to consolidate it. You have two options: pay down the debt through debt consolidation or reduce the amount through debt settlement.

Debt consolidation help restructure your debt payments so the balance is stretched over a much longer term. The goal here is to lower your monthly contributions without being penalized for it. Take note that you will still end up paying for everything that you owe so you have to make sure that your income can support it. There is a possibility of getting a lower interest rate with the new payment plan that debt consolidation will set up for you. That will decrease the monthly payments even further but do not bet all your savings on it.

If you need further reduction, you may be better off with debt settlement. This option involves negotiating with your creditors and convincing them that you are in a financial crisis. Explain to them how this crisis rendered you unable to keep up with your payments. It can be an illness or a recent job loss. Give them the details and let them know that you still take full responsibility for the debt. It’s just that recent events made it impossible for you to meet the minimum requirements of your debt. You will then offer to pay pennies for every dollar. If you and the creditor agree on a settlement price (e.g. .50 for every dollar), you only pay that percentage and have the rest forgiven.

While the latter option may seem like the better choice, know that your credit score will suffer because you will have to default on your payments. That is one of the ways to convince your creditors that you are in a crisis.

Choose between the two based on your financial capabilities. You can always grow your income so you can afford the first option. Just remember that your debts are your doing and thus you are responsible for completing its payments. Don’t ignore the problem that you created because this is one of those that will not go away on its own.

Will Living Without Your Cards Keep Debt At Bay?

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Consumerism is driving economies all around. It has a lot of benefits for a lot of industries but for the buying public, it holds a lot of challenges.

Will Living Without Your Cards Keep Debt At BayThe primary tool driving a consumer-centric economy is purchasing capacity. If you do not have the means to purchase a specific item, then you cannot get it. But this practice has been shattered to pieces with the advent of credit cards. This purchasing tool is so rampant that individuals sometimes have more than one in their possession.

As the name suggests, this plastic card allows you to purchase items on credit. Even if you do not have the actual money on hand, it lures you to buy the item anyway because you can pay it off at a given time in the future. This way of thinking has crippled a lot of families by putting them in credit card debt and left in regret as to why they kept purchasing all the items in the past.

Getting rid of your cards is a good start in trying to keep debt away. If you have more than one card, pay all of them off, call the bank to cut the credit and literally cut the card in half. Keep one card in your possession just for emergency. It will also be your tool in getting your credit score up as long as you can pay it off after every purchase.

Starting to live without your cards will take some getting used to if you have been dependent on them for the longest time. The next thing you need to do is sit down and look at your expenses every month. With this list, match it with your monthly income. Your income must always be bigger or at least equal to your expenses. If it is the other way around, you will have to find a way to either increase your income or reduce your monthly payables.

Once you are all set on this step, next is to adopt a cash basis policy. It means that you use only the cash on hand in managing expenses. This is where maintaining a budget comes in handy. With your list of expenses and income, you will know how much amount should go to where every single time.

One idea to keep tabs in this is to categorize your expenses and by using an envelope. Mark envelops based on the category. With your expense list, identify each of them and put them in a category. Every time you get your income, whether from a job or business, make sure that you put in the envelope what you have budgeted as payment for each item. It also applies to your  weekly allowance if you keep one. It lets you know how much you can spend and limits it at that amount.

Another idea is using a debit card. Yes, it is similar in look and feel and even the way you use it to purchase items with a credit card with one major difference – it runs on a debit system. You can only use it if you put money in it. Think of it as a state of the art piggy bank. You can only consume as much as you have put in, nothing more.

Of course, all these will be pointless if you do not adapt a change in attitude. You can cut all the credit cards you want but if you keep the same buying mentality of getting what you cannot afford, you will still feel the disadvantages of having a big debt.

Protect Yourself From Abusive Collectors: Know Your Rights

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One of the things that make debt very hard to live with are the collection calls that go along with it. Most of the time, these calls turn ugly and threatening. It keeps consumers awake at night and it brings in a whole new level of stress that can lead to a lot of health complications.

This is only one of the dreaded effects of debt and if you want to relieve yourself from it, you have to know your rights first. There are rules and regulations that bound debt collectors and these are all designed to protect consumers.

Protect Yourself From Abusive Collectors Know Your RightsThe most prominent law that you have to know is the FDCPA. Short for Fair Debt Collection Practices Act, this contains a list of do’s and don’ts for all debt collectors and even the original creditors. The federal government came up with this law as part of the Consumer Credit Protection Act and it helped a lot of consumers in dealing with their respective debt problems. This was most helpful during the most recent economic crisis that the US went through.

When you start hearing from debt collectors, this usually means that you had been late on your payments. While your debt is your own responsibility and you have to own up to it, that does not mean your life should be made a living hell for it. Here are the important parts of the FDCPA that will help you communicate with them.

Based on the FDCPA, debt collectors are expected to:

1. Identify themselves, the original creditor, debt amount and provide proof that the debt being collected is owned by the consumer. Everything must have a written documentation.

2. Explain the rights of the consumers in terms of disputing a collection or verification request. Consumers should also be made aware that they have 30 days to do it.

3. Respond when needed when a dispute or verification request is submitted.

4. Stop collection calls/communication when requested by the consumer.

5. File a lawsuit only in the State where the consumer lives or the contract is signed.

Also stipulated in the FDCPA, debt collectors are prohibited from:

1. Calling the consumer:

  • outside the timeframe of 8am to 9pm (local time of the consumer).
  • repeatedly as it is harassment.
  • in the workplace when the consumer requests that calls should be in their home.
  • when they have a representative (e.g. a debt relief expert or a lawyer).
  • before submitting verification of the debt.

2. Misrepresenting themselves as a law enforcer or lawyer.

3. Placing the consumer’s name on the list of “bad debts” without prior notice.

4. Collecting an amount that they cannot justify or is not part of the original debt.

5. Making false legal or arrest threats.

6. Using abusive or profane language.

7. Calling other people to discuss the debt of the consumer.

8. Placing incorrect information on the credit report of the debtor.

The FDCPA is not only there to protect the consumer, it also encourages fair collection of debts and to provide a venue for any complaints against abusive collectors.

Read this law and know it by heart. If you really want to stop collection calls, you can also use debt management for that. You will be assigned a debt counselor who will help negotiate and communicate with creditors on your behalf.

Consolidate Debt Rather Than Paying Only The Minimum

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Consolidate Debt Rather Than Paying Only The MinimumMinimum payments are practically the biggest trick that credit card companies have come up with. They make you think that you are cruising just fine with your credit card debt by just sticking to this amount. That is a big fat lie. While you may be saving yourself from late penalty fees, you are not making any significant progress in your debt. Chances are, you are setting yourself up to pay your credit card debts for the rest of your life. Your creditor prefers this scenario because the longer it takes you to pay off your balance, the more interest you will give them. That means more profits for the company.

The Credit Card Act of 2009 actually mandated card companies to inform consumers about the repercussions of sticking to minimum payments. If you look at the statement on your credit card bill, you will notice that there is a box containing relevant information about your minimum payment. The text box includes figures that indicate how long it will take you to finish paying off what you owe and the amount you will waste on interest if you stick to your minimum. Most consumers find this useful and have in fact, taken it upon themselves to pay more than that amount every month.

But here’s the problem, what if your budget can only afford to pay the minimum? How can you solve this dilemma?

This is where debt consolidation comes in to help. This type of debt solution provides consumers with a structured payment system that allows them to make lower monthly contributions towards their debts. You may be wondering how that is different from minimum payments.

When you opt for debt management, which is one program of consolidating debt, you will hire a counselor who will aid in creating a debt management plan. This low payment plan stretches your balance over a long term. This is presented to your creditors and once they give their blessing, you can make payments based on this plan through the counselor. Your account will be frozen – meaning you will not be allowed to use it until you have finished or decided to quit the program prematurely. But until then, your minimum payments will not have the same effect as long as you stay under the debt management program.

If you opt for debt consolidation loan, you will apply for a loan amount that can pay off the other debts that you have. This will eliminate your credit card debt altogether and just shift all of what you owe into the new loan. So no minimum payments here either. Unless of course you decide to re-use your card again – which is highly discouraged.

Of course, you always have the option to earn more money so you can pay more than the minimum. The thing is, you don’t really have to put in a lot of additional into it. Even an extra hundred dollars will make the difference. So think about it by consulting your finances. You will always go back to your budget and your payment capabilities to see how much you can really afford to pay towards your debts. You have a lot of options before you – just make sure that you will never include sticking to minimum payments as one of them. That really never works out for anyone.

What To Do After The Approval Of Your Loan For Debt Consolidation?

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There are many pitfalls in debt consolidation loan. This article is not meant to bash this debt solution. In fact, we’re here to help you make sure that you avoid all those pitfalls. If you got yourself in debt, that means you are not in the best position to manage a huge amount of money.

What To Do After The Approval Of Your Loan For Debt ConsolidationDebt consolidation loan is all about getting a huge fund to help you pay off what you owe. The idea is to combine your debts by paying off the others with this one loan. That will leave you with only one debt to deal with.

One of the temptations that you will encounter in this debt relief program is when you get that loan approval. Since it is a big amount some people are tempted to use it on something else – at least a part of it. This is not right. So to help you override this feeling, here are the things that you must do once you get the approval on your loan.

Before you can even think about the temptation of using the loan to buy something expensive, go to your bank and pay off the debts that you intended to close. Whether they are credit card companies or lenders, you should settle what you owe immediately.

But after that, there are a couple of things that you have to do.

First of all, keep your credit cards. This is one of the temptations that you have to avoid. Once you have paid off your cards, they will all have zero balances. You want to keep yourself from spending through these cards and thus increase your debt.

Next is to arrange a payment plan. This should have been done before you applied for the loan. However, there is no harm if you haven’t. But you have to do it now. Start with your budget plan. Indicate your income and expenses. When you are plotting your expenses, identify the wants and the needs. You need to rank your priority expenses to ensure that you are putting money into your priority list. Make sure this single debt payment is included in your budget so you will never forget to pay it. Put up reminders that will ensure this payment will always be met.

Lastly, you may want to build up your reserve fund. Growing your savings is a very important part of staying out of debt. Sometimes, people do all the right decisions when emergency strikes, they are simply not prepared for it. Any immediate and sudden expense will have to be borrowed if you do not have the savings to finances it.

Increasing your income maybe a good idea to help make this possible. If you have just enough for your expenses and your debt payment, then you need to do something to increase your income. The option of cutting back on expenses is there but that is only limited. Increasing your earning may be more appropriate to quickly grow your savings.

Follow these steps and you are sure to make debt consolidation loan a success in your financial life.

Debt Relief Options That Lower Your Monthly Debt Payments

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Debt becomes hard to get out of because it restricts your monetary resources significantly. So if you want to survive your debts, you may want to find a way to lower your monthly contributions. That way you have more money to spend on other things in your life.

Debt Relief Options That Lower Your Monthly Debt PaymentsBut how can you do this? Surely your creditors will not allow you to dictate how much you will send towards your debts without imposing some sort of penalty. The good news is, you have debt relief options that will make this possible and minimize or eliminate the penalty charges associated with it. All types of program will allow this to happen but you need to consider what you have to sacrifice for it.

Debt consolidation is probably the best debt relief option that will allow you to lower your monthly payments without ruining your credit score. There are three different ways to accomplish this.

First of all, you have debt management. This type of consolidation involves a debt counselor. They will help you come up with a debt management plan that basically stretches your payment over a more extended term. This is what makes your lower monthly contribution possible. They will show this plan to the creditor and if they approve, you can send a single payment to the counselor and they will be in charge of distributing it to the rest of your debt accounts. They will also negotiate for a lower interest rate which will lower your monthly payment even more.

The second option is debt consolidation loans. In this method, there is no professional involved but the same consolidation and longer payment term takes effect. Unlike the previous, a low interest rate is easier to guarantee. What you will do is apply for a loan that is enough to pay off your debts – at least the accounts that can be paid in advance. Some type of debts will penalize prepayment transactions. The key is to make sure your loan has a low interest – which can be done if you have a high credit score or a collateral. Loan payment terms are usually 3-5 years long and that can help lower your monthly payments too.

Another option is balance transfer. This means getting a new card that has a zero interest promo. The consumer will transfer the amount so that the high interest balance will be transferred to one that will not impose interest – at least during the promo period. This usually lasts from 6 months to a year. That means any payment that you will make during this time will only go to the principal debt.

There is also the option to get out of debt using debt settlement and bankruptcy. Both can also allow you to make lower monthly payments. Debt settlement actually aims for an overall debt reduction. The idea is to negotiate with the creditor so you are allowed to pay only a percentage of your debt and have the rest of it forgiven. Bankruptcy involves a court system that will decide if your debts should be discharged or not. If your financial conditions are qualified, you could end up not paying anything towards your creditors. Of course, that comes with a price and it is your credit score. If you don’t mind lowering your credit score, then these two could be an option for you.

Control Debt Desperation Through Debt Management

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Control Debt Desperation Through Debt ManagementA desperate individual is oftentimes very dangerous. It implies that they are placed in a position where they have nothing left to lose and that drastic measures are deemed to be quite logical. This is what a person in debt can lead to.

Debt is such a destructive force that it can literally turn your world upside down. If you are not careful with it and you do not know how to manage it properly, you could end up with more payments than your income can handle. It can create a strain in your personal relationships. Not only that, it can cause so much stress in your life that it could lead to serious physical illnesses. All of these debt effects are not assumptions. If you read through the life stories of people in debt, you will find one or more of these in their lives.

But if you found that your debts have spiraled out of control and you don’t want to be subjected to all these negative effects, what can you do?

As unfortunate as it may seem, being is debt does not remove all traces of hope. There have been successful stories of people who have overcome debt. The key lies in your commitment to get out of debt and the debt solution that you will choose to help you achieve that.

One of the effective programs that will allow you to pay off your debts conveniently is debt management. This solution involves the help of a professional who is called either a credit or debt counselor. The program begins with a careful analysis of your current financial standing. The counselor will give you advice regarding the best way to get yourself out of your credit crisis.

When the counselor has an idea of your debt and your capabilities to pay it off, you will both create a debt management plan that will serve as your guide throughout the whole process. Also known as a DMP, this plan will contain all of your debts and the corresponding payments that you will send towards each account. The payments will be relatively smaller than what you are currently paying. That is because the counselor will distribute your balance over an extended payment term. This will be negotiated with the creditor. If the creditor agrees, you will send a single payment to your counselor, who in turn will distribute your payments to the various creditors you have enrolled in the program.

The result of debt management is a more organized debt payment plan that will allow you to ease up on debt monitoring since your counselor will be doing that for you. Although you may want to take a peek every now and then, you will find that you have more free time to concentrate on growing your income so you have more money to send towards your debt payments.

The great thing about this program is the fact that you will be educated on how you can stay out of debt. This is a needed lesson by people in debt because no matter how good your debt solution is, if you haven’t learned your lesson, you could end up in debt once more.