With a steady rise in the rate of interest, mortgages, credit card repayments and individuals being made redundant, it is becoming very difficult for many to meet with their repayments, something which was not a problem in better times. If you face a similar problem, you will also be aware that defaulting on loan repayments incurs hefty fines as well as leading to a drop in credit ratings. This leads to the lower probability of being able to borrow from banks and other financial institutions which approve loans on the basis of an individual’s credit score.
There’s more to debt than just debt
Stress, insomnia, relationship difficulties – all come from the effects of mounting debt (Read more about the emotional effects of debt here.) Getting in control and stopping the debt taking over your life as early as you can is vital for your personal wellbeing, and that of your family.
The main cause of an increase in debt
To begin with, one of the primary reasons for an increase in debts is inflation, which has resulted in a higher cost of living. It is becoming increasingly difficult for individuals to balance their monthly budgets with the spiralling costs of living that need very careful budgeting. Balancing the budget at the end of the month is increasingly becoming more challenging for most individuals, especially when debt levels are increasing and salaries are not. This is evident in all age groups, as seen from statistics provided by a payday lending brand Wonga. In a recent study they discovered that borrowers come in a range of age groups, with 30% of people as young as 18 borrowing loans, and 15% of over 45s seeking short term financial solutions. Customers also borrow as much as £178 in their first loan, usually to cover short term financial needs like a sudden bill, car or medical expense. In such an unpleasant situation how do you manage to get out of this financial bog?
A possible solution – Debt Consolidation
One possible way out is opting for a Debt Consolidation Loan, generally termed as a Secured Personal Loan. This can help to get you out of a debt crisis but should only be opted for as a last resort. Going for a secured personal loan can help you to reduce your monthly debt to quite an extent, but you will have to pay more interest in the long term. These are generally offered to individuals who have low credit scores and involve putting up collateral (in most cases a home) which lower risk levels for the lender, but raise the margin for the borrower in the event they default on payments.
Other credit options to be explored
☑ Balance Transfers: Most of the top credit card companies offer 0% interest rates on balance transfers for new cards, for a specific period of time. It could range from six months to a year and if applied correctly, it offers a great way to reduce debt. The only limitation is that you must be able to clear the remaining sum prior to the 0% offer expiry.
☑ Use savings to clear debts: Rather than retain the hassle of debts and to save on interest repayments, a more feasible option is to pay them off using any savings you might have. After all the interest on savings is going to be less than that incurred on loans. It is not very practical to have savings and on the other hand have debts. It is far more prudent to use the money saved to pay off your debts, so that you could start afresh with a clean slate. The only exception is when your savings and debts are about the same and you do not have job security to support you in the future.
☑ Go for a remortgage: The principle of remortgaging also commonly known as refinancing, is when you swap your existing mortgage to a new lender, to get a lower rate of interest. The thing to look out for here is to see if there are any charges applicable. Although it is not the most suitable idea when it comes to paying off your debt, since the primary purpose of opting for it is to reduce your interest rates and mortgage expenses.
☑ Try to renegotiate: There is no harm in attempting to renegotiate, especially when it comes to debt. The main concern for any lender is bad debts i.e. where the capital amount is not recovered. You might be able to strike a deal with the lender, if you negotiate the payment term, penalties and even interest rates. There is no dishonour in trying, as long as it benefits you in the long term!
Resolving a debt situation is of utmost importance to your economic well being. It is left to your discretion as to what method would suit you best of the mentioned steps, to resolve any niggling debt issues you might have. Debt is not a problem, but rather a consequence of overspending or lack of planning. The best way to remain debt and stress free is to adopt a personal finance management method to ensure you have a secure future for your family and you.
Author Bio: The writer has worked as a personal debt advisor, with a national debt advice organisation and takes a keen interest in helping individuals to resolve their monetary liabilities.