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Debt Management – 5 Principles to help you get your debt under control!
It has been increasingly difficult to get credit these day, whether you’re looking for a car loan, credit card, or even a home loan. So managing your debt, and having a good credit score is very important. No longer are lenders handing out zero down and no interest loans. Credit card offers these days are reserved for those with good to excellent credit.
BusinessWeek says that total household debt in the US was more than 100% of our disposable annual income last year. The average person has more than $8000 in credit card debt.
The bottom line is that our personal debt is growing at an alarming rate. You can now charge your fast food meals at many restaurants, paying interest for years on something you consumed in one sitting. Many people have taken steps to address their debt problems, including consolidating debt to lower interest rate cards, or to home equity loans, or at worst case the dreaded “B” word, Bankruptcy.
5 Principles of Debt Management
1. Create an accurate assessment of your debt situation.
Make a list, chart or whatever you’re most comfortable with, of all your debts. Be sure and include the amounts, interest rates, and expiration dates (especially on any no-interest for ## days type loans). Be sure and note any old accounts that you’ve got “laying around”, such as that department store credit account that you opened to get the 15% discount.
You can now get a free credit report online. You should make sure that you’ve got a credit report and FICO score from each of the 3 national credit bureaus: Experian, Equifax, and TransUnion. The FTC advises monitoring your CREDIT REPORT activity ON ALL 3 BUREAUS. Under a new Federal law, you have the right to receive a free copy of your credit report once every 12 months from each of the three nationwide consumer reporting companies. AnnualCreditReport.com allows you to request a free credit file disclosure (ie. Credit Report) once every 12 months from each of the nationwide consumer credit reporting companies. This free credit report won’t include your credit score, but it does give you a consolidated list of your debts, a record of requests for your credit history, and a summary of your rights under the Fair Credit Reporting Act.
Once you’ve gotten your free credit report, you also need to get your Credit Score. You can get your Credit Score, along with daily 3 bureau credit monitoring and other great services from FreeCreditScore.com.
2. Make a budget and stick to it!
Making a budget helps keep from increasing your debt, while you’re trying to pay it down. Be specific and detailed in your budgeting. Except for emergencies, you should only be spending what is accounted for in your budget. Some people have found it helpful to keep a 30 day log of their spending. Carry a little notebook, or some index cards with you, and write down everything you spend each day. You’ll probably be amazed at how much money you spend on things you want, and don’t really need. The smallest things, such as that $3 cup of coffee every day, can slowly eat away at your finances. This will help keep you from getting further in debt. Your budget should define how much money you’ll send to each of your creditors monthly and how much you need for bills, and how much is left for discretionary spending. Try limiting your discretionary spending to things you can buy with “pocket cash”. This may be hardest thing you’ve ever done, but you won’t get further in debt if you only spend what you have.
3. Pay off the debts one by one.
Maintain minimum payments to the rest of the debts, but pick the debt with the highest interest rate, and send extra payments to pay it off. There is a proven psychological benefit to being able to take a debt off of your list.
4. Consider debt consolidation or debt restructuring and possibly refinancing your home mortgage.
Lower your credit card debt by 70% by consolidating. With interest rates down, it also may be time to refinance your home mortgage loan and cut your monthly payment. You can get free mortgage loan quotes at LowCostLending. When you refinance, make sure closing costs and other fees don’t outweigh the savings in your monthly payment. Another option is to get a Home Equity Loan. Home equity loans are good because they allow you to deduct the interest on your income taxes. Remember though, new credit is not a license to incur new or more debts. Once you’ve transferred a balance by consolidating, or refinancing, don’t add more charges to the old account. If you’ve got a lot of open accounts, you may want to close some of them, but you shouldn’t necessarily always cancel the old account. Having a good payment history with a few existing accounts can be better for your credit record than many canceled and new accounts.
5. If necessary, get help.
You may choose a credit counseling service, or debt counseling and debt help service to help with each step of your debt solution. Credit counselors can add accountability to your debt solution, and also serve as a source of encouragement. They are used to dealing with people with bad credit or poor credit, and can help you create a custom debt solution. They can suggest money lenders that might be more willing to make a loan to someone with a lower credit rating. Once you start reducing your debts without incurring new ones, you’ll start to see your credit score rise.
By following these simple principles, you should be able to get your debt under control, reduce it, and eventfully eliminate it.
Managing debts is a difficult task and many people do not have the means to pay off their debts. Often, people get overwhelmed by the options available for consolidation of debts and they cannot decide their course of action. Out of the available options for debt relief, seeking the help of an agency which provides credit counseling services is the best. There are many such agencies which offer credit counseling services and every month, thousands of people opt for the services of these agencies. People have benefited from using such services as they could consolidate their debt and pay them off over a short period of time.
What is Credit counseling?
It is a practical approach to tackling all kinds of debt and these agencies offer solutions based on the credit situation of the consumer. People should understand that there cannot be a general solution to everyone’s debt issues as each individual is different. Hence, credit counseling agencies or companies can assist people on an individual basis, based on their ability to make payments, total available financial assets, total amount of debt, annual income and so on. The credit counseling agencies are present in countries around the globe and it is easy to approach any of these agencies when one is in need of their services.
How does credit counseling work?
It works for most people as they get to find practical solutions to their debt issues, which they can adhere to. Besides, they help the people in negotiating with the creditors and reaching settlement agreements, which make it possible for the borrowers to consolidate and reduce their total debt in due course of time. Also, the credit counseling agencies can assist the borrowers in applying for loans (both secured & unsecured), which can help them in clearing the debt amounts in a short period of time.
The agency can let people make realistic monthly budget which they can easily adhere to. People who take the help of these agencies can realize their financial goals and manage their money in an efficient and effective manner. In the end, people can find a balance between their expenses and income, and wisely use their available credit, so that they can achieve their goal of getting relief from debt and be financially stable.
Advantages of credit counseling services
- People can achieve better understanding of their credit standing and financial situation;
- They can arrange for the borrowers to make a single payment every month;
- They can also assist in lowering the interest rates of the borrowers;
- People do not have to face the calls of collection agencies and will not have to negotiate with the creditors on their own;
- People will also be assisted in getting loans.
There are quite a few credit counseling agencies available in the market but not all of them are genuine. If you are looking for the services of a genuine debt relief agency, then you can opt for a reliable credit counseling or debt relief counseling service, which can help you with all kinds of debt management and relief solutions.
You must remember that a credit card is a not a bane but is actually a boon as long as you use it in the right manner. Make sure that you do not go overboard with your expenses and keep a track of the transactions completed with the card. In case there are supplementary cards, you should also keep a track of the transactions completed with them. Above all, you should always make the payments on time so that you do not have to worry about credit card debts.