How To Control And Reduce Your Debt Load

Friday, May 13, 2011, 2:00 AM | Leave Comment

We all know Western economy especially that of the United States runs on credit. Credit if not repaid immediately accumulates interest and thus turns into debt. Millions of folks would stop living financially if the credit industry stopped giving out money. That’s exactly what many folks thought that credit companies were giving out money and it was free. No one seemed to think they would eventually have to pay the debt back to the original creditor.

Another reason may be that debtors went way over their head and borrowed more than they really needed. The result is they are heavily in debt now if they have not already declared bankruptcy and they might be looking and researching how to control their debt enough that they can start reducing its burden.

In extreme cases, many folks have turned to debt settlers. Some are so desperate that whoever comes first to their rescue, they just hand the debt settlers their debt without doing research about the company. Some pay upfront fee and later find out that they have been had and consequently they are in more debt now than before.

All debts are not created equal

Some experts think that all debts are bad. But there are kinds of debt that may turn out to be good. The good debt consists of mortgage, student loan, or loan for starting a business. Any debt that can give you a return in the long run is considered good debt. Like I said many folks would disagree but it still holds true even in this bad economy.

However many folks borrowed more than they actually needed. They just went way over their head. They borrowed more than they could possibly pay back. They turned good debt into bad debt. People just got greedy.

Bad debt comes into play when you use your credit card ruthlessly, pay only the minimum every month. You keep using your card nonstop the next month, and debt on your card just keep piling up. A time comes that you don’t know what to do. Panic takes hold of you. You hire the first debt settler that comes along, get in more debt because of it and eventually you don’t see any other way to get out of debt but to declare bankruptcy.

Control And Reduce Your Debt Load

Little do debtors know that before hiring a debt settler, there are certain steps they can take to control and reduce the debt burden on their shoulders. First off, they must not panic. If you are one the heavy debtors and take the following steps, you may be able to reduce the debt load:

  1. Prioritize Debt

    Borrow money for things that provide long-term and lasting value. Borrowing for mortgage, college costs or starting a business may turn out to be good investment. But charging another extravagant vacation on your credit card is not a good use of debt which may haunt you for many years to come.

  2. Use better judgment in borrowing

    Make sure when you borrow, the terms and conditions match up with your goals and how you manage your finances. Different types of debt have different interest and terms.

    In case of credit card
    If you pay your bills on time and in full every month and do not incur finance charges, it may be fine to have a card that has a high interest rate. In that case, a rewards card and / or no annual fee is good for you. However, if you carry over balances and pay finance charges, the interest rate you pay becomes more important. So you would be wise to search for a credit card that offers the lowest interest rate.

    In case of Mortgage
    If you are borrowing for home mortgage, the type you choose will affect the interest rate. Mortgage can be Adjustable Rate Mortgage (ARM) or Fixed Rate Mortgage (FRM). Choose one that matches your behavior to personal finances. If you plan to sell your home soon, you may want to choose ARM with a lower interest rate. If you plan to stay in the home or cannot afford any increase in payments if interest rates rise, consider a long-term FRM.

  3. Eliminate high-cost debt

    Get rid of the kind of debt that has the highest interest rate. Talk to the lender if you can convert it to a debt with lower rate. If you are paying interest on your credit card balances, find a card that offers a lower rate, but watch out for what is known as teaser rates. If you own a home, you may be able to use a home equity loan to consolidate all your debts at a lower rate.

  4. Pay down your debt

    Always think of interest rate when you borrow. Incurring interest charges you cannot afford is not a good use of your money. Find ways to pay down what you owe before you start panicking. Pay more than the minimum due on credit cards, a lot more. Paying down debt takes discipline and sacrifice.

  5. Unable to pay your bills?

    You can pay down debt sooner when you stop incurring more debt. If it comes to a point that you cannot pay even the minimum amount on your credit card, quit using or destroy them. Work with your creditors. You may be able to reschedule your payment. Explain your financial situation. Tell them you do want to pay what you owe. They may be able to help. We are all humans. Humans like to help.

  6. Make sure your checks don’t bounce

    Check with your state. It may be a worse offense to write a bad check than it is to not pay your debt. In addition, you may be charged for the bad check. It looks very bad to a creditor if your check bounces.

  7. Get professional help

    The Federal Trade Commission offers facts for consumers to consider when choosing a credit counselor. Read and understand the facts given on the website. Be very wary of debt settlers. If their sales pitch sounds too good to be true, it probably is.

In a Nutshell
Before you talk to a debt consolidator or the so-called debt settler, try the above ways of controlling and reducing your debt load.

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