4 Steps to Avoid When Trying to Get Out of Debt

Get Out of Debt

Making the decision to get out of a debt is the first step in your journey to financial freedom and security. However, paying off all of your debt isn’t something that happens overnight. It takes careful planning, smart decisions, and commitment.

Here are steps you’ll want to avoid so that you can be successful regaining control over your financial health.

1. Not Changing Your Spending Habits

Humans are creatures of habit, and you’re no exception. We tend to repeat our actions. Why? Because it’s comfortable and what we have become accustomed to.

However, if your goal is to pay off financial obligation, you can’t continue with the same spending habits. This means you’ll have to work extra hard to stop doing things you’ve been doing for months, if not years.

Some of the best ways to improve your spending include:

  • Cooking meals at home
  • Not making impulse buys
  • Separating wants from needs

You don’t have to stop spending on things you enjoy. However, it’s important to make better choices with the money you do spend.

2. Not Creating a Budget

One of the most important tools you’ll need in order to pay off financial obligation is a budget. Without a budget, it’s impossible to gain control of your finances.

Most people don’t create a budget because it “takes too much time.” But the reality is that creating a budget doesn’t require hours upon hours. Getting started is simple.

Start by writing down all of your income. Then write down all of your bills, such as your car payment, mortgage, and utility bills. With the money you have left over, save as much as possible, while also saving some funds for a rainy day.

In the age of swiping cards and mobile payments, it’s all too easy to lose track of how much you’re spending.

3. Trying to Pay Off Too Much Debt at Once

Many people make the mistake of trying to put an end on your debt by paying everything off at once. If you have multiple credit cards and loans, you may put all of your money towards them each month, leaving nothing left to account for emergencies.

Instead of trying to tackle all of your financial obligation at once, prioritize your debt. Start by:

  1. Listing all of your debt
  2. Ordering debt from highest to lowest interest rate
  3. Paying off any small balances (i.e. $200)

Start by paying off the highest interest debt first. Once this debt is paid off, go to the next card or loan with the next highest rate.

You may also want to consider debt consolidation. If you have several credit cards and loans, you can combine them into one loan that is paid at a single interest rate.

4. Not Getting Help

Tackling debt on your own can become extremely overwhelming. Even if you’ve created a budget and prioritized your debt, seeing such large numbers can send you into a mental tailspin.

Don’t hesitate to ask for help and support from those around you. There are also non-profit credit counseling agencies, financial courses, debt counseling, and credit counselors available to help you every step of the way.

Stop Letting Debt Weigh You Down

Carrying around years’ worth of debt gets quite heavy. The good news is that debt isn’t a life-long sentence. With a plan, commitment, and willingness to change, you can finally dig yourself out of your financial hole. Dont make unnecessary money mistakes.

Make financial freedom your future by not making these four common mistakes when getting out of debt.

Don’t Bite Off More Than You Can Chew | How to Manage Debt Responsibly

Contrary to popular belief, there isn’t anything wrong with borrowing money. In fact, sometimes you have little choice but to borrow money to meet a need. Having a little bit of debt to your name may even help you out when you want to purchase a house, or perhaps wish to borrow cash for a genuine reason.

The issue isn’t so much with borrowing money, it is biting off a little bit more than you can chew when you do borrow it. We want to help you out and make sure you don’t dig a financial pit.

Borrow from Licensed Lenders

You think this would go without saying, but you will be surprised at just how many people will borrow from less-than-reputable companies. If you do this, then you are borrowing irresponsibly. You will have high interest rates, and there will be nobody that “has your back” should things go wrong. Unlicensed companies are operating outside of the law. Avoid them and avoid inescapable debt.

Only Borrow as a Last Resort

You should never be borrowing money for the sake of borrowing money. Before you apply for a loan, you need to think long and hard about whether you genuinely need the cash or if you can sort something else out.

If you have no other choice but to borrow money then make sure that you only borrow exactly what you need. Nothing more. The more money you borrow, the more you will need to pay back.

Can You Afford to Pay Back the Loan?

When you are borrowing, make sure that you understand the repayments amount.

Before you agree to sign up for a loan, we suggest that you make a budget. You need to know exactly what you have coming into your bank account, and exactly what is leaving your bank account, every month.

You need to make sure that you have enough free cash to be able to afford the repayments on your loan (https://theislandnow.com/blog-112/effective-debt-management-strategies-to-pay-off-debt/). If you do not have any money to spare, then do not accept the loan agreement. It doesn’t matter how much you need the cash, this is just irresponsible borrowing.

Don’t Take on Too Much Debt

We have seen it time and time again. People see that they have a good credit score, and they apply for loans and credit cards galore. Don’t do this.

As we said before, make sure that you only borrow money when you have no other choice. We know it can be tempting to have all these lines of credit available to you, but you would just be biting off more than you can chew. You will have to pay them all back, after all. Could you cope with masses of debt if you lost your job? Probably not.

Avoid High Interest Loans

Want to know one of the best ways to kiss goodbye to proper debt management? Opting for high interest loans such as payday loans. While they will accept just about everybody with a job, the interest rates are so high that you really have little chance of being able to afford the repayments, and this will cause the debt to roll over to the next month. This makes it even more unaffordable.

If you want to avoid biting off more than you can chew, then you must shop around to find the best loan for your situation.

The Consequences of Mismanaging Your Loans

If you fail to do apply a debt strategy and do end up biting off more than you can chew, then you are going to be in a whole heap of trouble.

While you may not think a single missed payment is a bad thing, it is. Lenders will charge fees for missed payments. These fees can start to add up pretty quickly, particularly if you miss multiple bill payments. A couple of months of missed payments and your debt can very quickly spin out of control, and it can be pretty difficult to recover from something like that.

A single missed payment will also have an impact on your credit score. This can make it difficult to borrow money in the future. So, one missed payment is not going to impact your credit score all that much, but multiple ones will lower your credit score. You can destroy your credit score from just a couple of months of missed payments, and it can be exceedingly difficult to bring everything back up to scratch again.

When you find it difficult to borrow in the future, you may not be able to apply for a mortgage. You may not be able to rent a place. You may not be able to get the internet or cable TV subscription. You will simply struggle with anything that involves money with other companies. This is something that may impact you for years to come if your debt mismanagement is bad enough.

Finally, you may find that some jobs require you to have a decent credit score. These will be mostly those related to the financial industry. While this is not something that will impact most people, we do want to point out the fact that you will be limiting your job options a little bit by mismanaging your debt.

In the End…

If you already feel as if you have bitten off more than you can chew when it comes to debt, all you can do is work as hard as you can to bring up everything up to date. It may take you years to recover.

If you have yet to borrow, then follow our suggestions at the start of this page. This will ensure that you run the smallest risk of dealing with debt issues.

How to Get Out of Debt Faster

If you’re in debt, the reality of owing that much money might feel like too much to face. But when disaster strikes, you’ll have to face the situation. Unfortunate events might happen in rapid succession, like a job loss, home repair, or a sudden illness. That can knock an already fragile financial situation off track and make you feel like you can’t keep up with your payments anymore. Paying off debt is one of the hardest ways of taking control of your life, but with enough work, you can do it. Maybe you are already being contacted by the Rossendales? Don’t know who they are? Find out who are rossendales.

Get a Better-Paying Job

You can save money to help you get out of debt sooner, but there’s only a certain amount to go around, so getting a job that pays better might be a better option. Consider your interests and think about something that has a better salary. Careers in science, technology, engineering, and mathematics (STEM) often come with better salaries. These jobs often require a college degree, so if you want to stay out of debt, you may want to consider going back to school. Don’t be afraid to take out private student loans since you might be able to get a discount on the interest rates. The interest is often tax-deductible as well.

You might also get a second job, which will help you further amplify your efforts to live a debt-free life. Even if you don’t realize it, you probably have a skill or talent you can monetize. Consider becoming a virtual assistant, mowing yards, doing freelance writing, or babysitting. There are websites where you can find ways to earn extra cash. Just make sure that whatever you earn goes toward paying off your loans instead of unnecessary expenses.

Pay More Than the Minimum

Just because you have to pay a certain amount each month doesn’t mean you should stop there. Say you owe around $15,000 in credit card debt and only pay the minimum of a few hundred dollars each month. With an interest rate of around 15 percent, you’ll be chipping away at it for over a dozen years. Of course, that’s assuming that you won’t rack up the balance even more. Whether you have personal loans, credit card debt, or car loans, you can pay it off sooner if you do more than the monthly minimum. That will help you save on interest while allowing you to pay off the balance sooner. Just make sure the terms of your loan don’t outline any penalties for doing this. If you need some help, there are many free online tools to help you track your progress.

Make and Stick to a Minimalistic Budget

You’ll need to cut your expenses as much as possible and live on the minimum. Make a budget that only allows for the necessities, like rent and simple food, so the rest can go toward your debt. While this budget will look different for everyone, it shouldn’t have extras, like subscriptions or going out to eat. Remembering that it’s only temporary may give you the motivation to stick to it.

5 Ways to Cope with Your Debt in Coronavirus

The coronavirus pandemic and the resulting lockdown has negatively affected the financial situations of many people, particularly those who were already in debt. Debt payment plans on mortgages or credit cards that you set up when you had a steady income may be unmanageable now that you’ve been laid off or your work situation has changed in some way.

Coping with debt and avoiding bankruptcy could be your main concern during the lockdown. Thankfully, there are strategies you can use to manage, reduce, or prolong your debt payments during the quarantine.

  1. Know your loans

If you have loan payments, your provider may be able to give you valuable information to help you change your plan or to learn information that could ease your situation. For instance, interest and payment schedules on student loans are on hold right now.

If you are working on very low income right now or out of a job altogether, you can renegotiate a plan that’s a lighter financial load. If you’re still in school, there are also far fewer restrictions and withholdings related to income for new loan applications.

Your lender, whether it’s a bank or the federal government, may work with you during this time to renegotiate your payment schedule. There may be provisions already in place for you to have easier loan schedules. It pays to check with your loan lender to know your options.

  1. Make a schedule

No matter how you are treated by your lender, you need to keep track of what you owe. Credit scores are going to take a hit during the lockdown because of people’s inability to pay off their debt.

This means that if you’re pressed for funds, you shouldn’t be making generous payments on one loan and ignoring another. You should be working out the minimum payments on everything in order to keep your credit score afloat.

Savvy moneymakers often plan to reduce their debt each month and make their schedule accordingly. 

However, there may be more important things to worry about right now than getting out from under a loan.

  1. Spend wisely

Many of us received a $1,200 stimulus check for the lockdown situation. A lot of those who did probably rushed out to get the new Animal Crossing game, but you should consider the best possible use for this money.

You should think of this money as a resource to get your bills in better shape and keep your credit score above water, not play money.

  1. Keep a budget

Budgeting is good advice even without a pandemic to worry about. However, it’s even more important to keep a stable savings account during the lockdown because you need to stay ahead of your debt and prepare for the worst.

With no job and the possibility of getting sick, you need to cut extra expenditures so you have a little extra for a rainy day.

  1. Refinance for the future

You may be just trying to scrape by right now, not even considering that refinancing your house could be an advantage. However, a savvy investment decision right now could be a huge benefit to your situation.

Mortgage rates are at record lows right now in order to try and get money flowing as per usual. If you plan on moving after the crisis has passed, refinancing doesn’t make sense. However, if you plan on living in your home for a long time, it could be a financial boon for you for years to come that you financed during a period of such low rates.

Closings are a problem right now because people are scared to leave their homes even to see their attorneys. However, many lawyers are providing people opportunities to do so safely, such as allowing them to remain in their car while documents are signed or even using facetime on computers to give remote notarization (they’re called “eClosings”).

Regardless, you should consider it as an option that could get you a loan with a better rate.

The Takeaway

Debt consolidation may not be the first thing on your mind if your family is out of toilet paper. However, those who are out of a job or working at a greatly reduced income should take steps to manage their debt.

This includes contacting your lender to figure out your options, using wise saving and spending tactics, and even considering refinancing if the terms are right.

The pandemic is changing standards of saving and investment. Many lenders know this and are willing to help you manage your debt. It just takes a little communication and planning on your part to learn your options. 

How to Fight Debt at the Source

Debt is not an abstract concept. Rather, people accrue debt for a reason. It  might be to pay for medical bills, or to attend college, or to start a small business. Yet, because so many people struggle with debt, it can be easy to forget how debt occurs in the first place. To that end, today we’re going to focus on common sources of debt. We’ll explain what causes debt, what individuals can do to prevent taking on debt, and how they can get out of debt quickly.

Good vs Bad Debt

Having debt isn’t always a bad thing. In fact, paying off a loan successfully can boost your credit score significantly. The difference between good and bad debt is simply your ability to pay it off. If you’re capable of paying off a debt quickly, then it won’t present much of a problem. In general, avoid taking on debt that you’ll struggle to pay off in the future.

Preventative Measures

Of course, some debt is unavoidable. After all, if you get sick, you have to  visit a doctor. And that costs money. Still, it’s possible to take preventative action now to lower your chances of going into debt later. For instance, you could visit an STD screening center and thus address a medical issue with a minor investment before it becomes a major problem. This is obviously good for your health, but it’s also beneficial for your financial standing as well.

Mitigate Against Debt

Again, while certain debts may be unavoidable, they can be delayed and mitigated against. Let’s consider another example: education. Almost everyone has to take out some sort of loan to attend college. Savvy individuals can ease their financial burden in the future by going to a community college for a year and then enrolling in a more traditional university. It’s a simple concept, but a powerful one: the less debt you take on, the sooner you’ll be able to pay it off.

Change Your Lifestyle

No one should ever get comfortable living with debt. The longer you let a  debt exist, the more it will cost you. As such, it’s imperative to do everything you can to eliminate any debt you have as fast as possible. This may mean that you need to alter your lifestyle in the interim. While it would obviously be disappointing to go without certain creature comforts, your first priority should be to balance your accounts. Once you’re in a healthy financial position, you can then start to indulge a bit more. Trust us, it’s preferable to filing for bankruptcy!

6 Tips to Avoid Bankruptcy

Living through financial difficulty is one of the harshest things a person can go through. Sadly, this is something that most people will face in their life at some stage. Still, there is a big distinction between experiencing a mere financial roadblock and struggling with long-term revenue deficits and severe debt. If you face the latter, you will have difficulty buying things that others take for granted, such as getting a roof above your head or being able to cook nutritious meals.

Bankruptcy is a perplexing action to consider. Although it often results in successful debt relief, it may have drastic effects for your credit record up to ten years since the finalization of the bankruptcy. An individual should then only file if it is absolutely required. Given the significant effects of bankruptcy, including collateral damage and the effect on the reputation, this should absolutely only be viewed as a last resort. Below are few ideas to better protect against bankruptcy.

Cut Spending

The first step of the transition is finding out how much money you make per month. The fastest and simplest way to keep a grip on your financial patterns is by placing a budget together. The next move is to reduce expenses. Immediately stop using credit cards, and use cash for as many transactions as you can. If you can’t handle an all-cash existence to support your lifestyle, the next step of your initiative will be to downsize your lifestyle.

Maximize Income

Even if you have reduced your expenditures, you may not receive enough income to cover all of your living expenses. If this is the case, then it’s time to increase your income. The clearest way to achieve so is to find a strong career path. If this is not enough, you may want to take a second or third job. The same holds true for your partner.

Negotiate with your Creditors

So soon as you know you can’t fulfill your monthly payment commitments, you can notify your creditors, Bauer-Simmons said. There is no guarantee, but in some cases creditors agree to lower interest rates, change the terms of payment, or lower fees. “Some income is safer for the credit card firms than no income,” said Bauer-Simmons. If you are bilingual or prefer to speak Spanish only, you can consult with Spanish bankruptcy lawyer Walter Benenati in Florida to help you go through the process.

Avoid debt settlement services

Debt arbitration programs are provided mainly by for-profit firms and pay a premium to reach a deal with the creditors. Some firms pay for the payments up front, according to Consumer Reports, and these may reach up to 15 percent of the debt’s overall value. And in most situations, according to User Surveys, the businesses give no substantial relief from the debt problem to their customers.

Consider Getting a Second Mortgage or Reverse Mortgage

If this all fails to operate, another potential solution may include a reverse mortgage. If getting a reverse mortgage wlil get you out of debt and bring you down the track to a healthier financial situation, it might be worth it. You’re basically placing your house “on the table” for this decision and it’s not to be taken lightly. You should definitely consider this option closely. If you default, or start racking up more loans, it may have severe repercussions.

You Can Still Get a Mortgage With a Poor Credit Score

Do you think if you have a poor to no credit score you cannot get approved for a mortgage? While with certain conventional loans this is true, other options will allow you to have a minimal credit score.

One of those options is a USDA loan.

When applying for a mortgage, there are many things the lender takes into consideration. What you make every month, what your debt total is, and if your payments are less than what your income is. Your credit score is only a part of the many factors that contribute to whether or not you get approved for your mortgage.

Your credit score for a USDA loan matters, but there is another way of getting this mortgage. Let’s take a look at what a USDA loan is and how you could get one even if you have no credit.

The Basics of a USDA Loan

A USDA loan is a rural housing loan backed by the United States Department of Agriculture. The government created this program to help boost the housing market, especially in rural and suburban parts of the country. Not only that, the loan helps make housing more affordable for low-to-middle income families.

The USDA loan has some of the lowest interest rates when it comes to mortgages across the country. That is one of the major appeals to this program. On top of that, there is a low mortgage insurance rate, and 100 percent financing (you are not required to make a down payment, another significant factor).

One of the hardest parts about getting approval for a USDA loan is the location of the property. Although there is a common misconception that you must live on a farm to qualify, rather, you can live in a rural or suburban community that is only miles away from a major city. The way the country defines rural and suburban, open up many opportunities to use this program to purchase a property.

Qualifications for the Loan

There are qualifications you must meet to get approval for this loan besides the location. There is an income limit of about $82,000 for a household with up to four family members, and just under $110,000 limit for families with five to eight members. The application takes into consideration the overall income of the household and not the individual applying for the mortgage.

Other qualifications include having an acceptable debt-to-income ratio, with the maximum being 41 percent. The property must also be in decent condition.

Credit Score Requirement

As mentioned earlier, you can apply and get approval for this loan with little to no credit score. However, most lenders do have a minimum of a 640 score. Your credit score shows how reliable you are with paying back loans and credit cards.

If your credit score is under 640, there is still a chance, although much more difficult. The lender must underwrite your loan.

If this is the case, you’ll need more information for the lender. He or she will want to see how long you’ve been at your current job, if you are a good homeowner, your on-time payment history over the last year, and what your bank accounts look like (including savings and retirement accounts).

Don’t let your credit score deter you away from the possibility of getting a mortgage. See if you qualify for a USDA loan.