If you are currently in a lot of debt then it can feel sometimes as though the walls are closing in around you. When you’re in debt then it means that really none of your money is your own and this can leave you feeling vulnerable and as though you could lose your lifestyle at any time.
Don’t Make it be a Vicious Cycle
At the same time debt is, unfortunately, a vicious cycle in many cases, and being in debt will very regularly mean that you end up accumulating more debt over time and getting into greater and greater financial difficulty.
There are many reasons for this, but one of them is your credit rating – the more debt you get into the worse your credit score becomes and so the worse deals you start to get with future loans and the more difficult you start to find it to get back on your feet.
What you need then ideally is some way to start paying off your debt – some tricks to help you start breaking down that wall of financial difficulty so that you can begin to see the light at the end of the tunnel. And what do you know? You’ve found some. Here are some of the best ways to start reducing your debt.
Transferring debt means essentially changing the company you owe a debt to – because believe it or not companies want your debt because it means you’re paying them for a long period of time.
This means they are willing to offer bonuses to you and to settle your dispute with other companies. By transferring your credit card debt to another credit card for instance you will find that you are able to reduce your APR, or even enjoy being interest-free for the first six months to a year.
Of course, if you choose well you might find that the new credit card has better rates too, so this is a very good strategy.
Loan consolidation means basically getting one company to pay off all of your loans so that you owe them the money instead. This is in a way a form of transferring your debt – you are transferring all your debt at once though. This means you have a more convenient system where you are only making one monthly payment.
However, at the same time, you also will find that you need to look around carefully to make sure that the APR for that one loan is smaller than the combined interest on all the others. This can improve your credit score greatly too.
Loan companies don’t want you to go bankrupt because they’ll lose money in the process. As such then you’d be surprised just how helpful they can be if you contact them regarding your difficulties.
Get in touch with your loans company and simply ask them about freezing your interest or changing your repayment schemes and this can help a lot.
Sometimes it’s just a matter of making sure you have more money at your disposal in order to help you pay off bigger chunks of your loan. There are many ways you can do this, from selling your car and choosing to walk or take the bus, to just stopping payments for things you don’t need like extra TV channels or Spotify.
6 Reasons Why Your Debt Is Out Of Control
If you are like many Americans, you have some amount of debt. A small, outstanding balance on a credit card may be manageable, but thousands of dollars of debt can be overwhelming. Having a lot of financial debt can lead to both emotional and physical problems, such as depression, anxiety, and anger.
The first step you need to take to solve your debt issues is to determine how you got into the situation. Determining why you are in debt can help you make the needed changes and learn to properly manage your money. Consider some of the common reasons why your debt may be out of control.
1. Avoiding the problem
It is easy to want to bury your head in the sand and not deal with debt problems, but that will only make things worse. One common way debt gets out of control is because you did not deal with it when it was more manageable.
For instance, if you are having trouble paying a credit card bill, don’t avoid lenders call. Reach out to the company and explain your situation. Work on a way to continue to pay, even if it means paying a bit less.
2. Not knowing your interest rates
If you use credit cards, you probably understand there is an interest charge, but do you know how high it is? In addition, the same credit card may have different annual percentage rates, according to Bank of America.
For example, you may have a certain interest rate for purchases and a different interest rate for cash withdrawals or balance transfers. Being unaware of your interest rates can lead you to use a credit card with a high rate when you have other options.
3. You live above your means
It is not a big surprise if you spend more than you make, you are going to end up in trouble. If you find you have trouble paying your essential bills because you spent too much on clothes, entertainment or gifts, you may need to give yourself a reality check.
Also, if you are using credit to pay for things because you don’t have the money upfront, it is another sign you are spending beyond your means.
4. Only paying the minimum due on credit cards
When you make a payment towards your credit card balance, some of the money will go towards the interest, which has accumulated. If your balance gets high enough, a large part of your minimum payment goes towards the finance charges.
This leaves only a small percentage actually reducing your balance. In the long run, you could end up paying much more than the cost of your original purchase.
5. Deferring repayment on your student loans
Student loan debt is becoming increasingly common. According to the Federal Reserve Bank of New York, in the United States, there are about 870 million dollars in outstanding student loans.
While taking out a student loan is not necessarily bad, continually deferring loan repayment can lead to out of control debt. Loans repayment can be deferred for a variety of reasons depending on the type of loan you have.
The problem is, interest still accumulates. By the time you start to repay the loan, it can end up being a lot more than you originally borrowed.
6. You spend money to cope with emotional issues
It may be hard to come to the realization that you go shopping and buy more “stuff” in order to make you feel better. While some people may deal with emotional problems by using drugs and alcohol, others go shopping.
Treating yourself to something nice if you’re feeling a little down may be reasonable occasionally, but if you are doing it too frequently, it may be contributing to your debt.
Be honest and ask yourself if you shop to deal with depression or anxiety. Additionally, determine if you make a purchase even if you really can’t afford it.
Dealing with your debt head-on is the only way to get it under control. Once you take an honest assessment of why your debt got out of control, you can make the changes you need to manage your finances appropriately.
Can not Paying My Debts Put Me in Jail?
The time that you long feared has finally arrived. The collection agency hounding you to pay your debts has sent you a letter stating that, if you don’t pay your bills within a specified period of time, they’ll be forced to take legal actions against you. If you don’t acknowledge the letter, they’ll get you arrested and you’ll spend time in prison.
The question is, can they put you in jail if you don’t pay your debt.
The answer to the question is “no.” There’s no crime to owing anybody any amount of money. You won’t go to jail just because you’ve failed to pay your debts, be it the bank, the credit card company, or somebody you owe money to.
A company or an individual telling you otherwise is only lying to you to get you to pay your debts. Aside from lying to you, they are also in violation of the Fair Debt Collection Practices Act. This is a federal law created to protect debtors from debt collectors.
Before the 1850s, there was debtor’s prison wherein people were jailed for not paying their debts. However, the government stopped using this system. Why?
One, it’s better for the debtor to be out of jail. This gives him a chance to be more productive in order to pay his debts. Two, the legal costs of putting someone in jail is far more expensive. Three, ugly as it sounds but the government does benefit if someone is in debt.
Look at it this way; we are a consumer-based economy. The more we spend our money, the more the government earns in tax.
Because most people cannot pay cash since their salaries are often not enough to cover all their expenses, they use their credit cards, which simply means money owed.
Now, if people were to stop spending, or in this case stops owing money, and start tightening their belts, then there’d be a decrease in government revenue.
To encourage more spending, more borrowing is encouraged, which puts you into more debt. Because the government needs you to be productive to spend and pay your debts, you won’t be placed in jail for money owed.
To Pay or Not to Pay
Let’s go back to your debts.
Since you won’t be jailed for not paying your debts, the collection agency will continue to hound you. They can also file a case against you in civil court. However, this will only happen if the money you owe is significant enough that they are willing to spend money just so they could get money from you.
Let’s say you didn’t appear for the court date and the judge ruled against you. The collection agency can ask the court to issue a writ of execution.
Now, if you still failed to show up for the court date, then a bench warrant may be issued for your arrest. You will find yourself in jail if you’ve been found in contempt of court, and this is totally bailable.
If you do find yourself in this sticky situation and you don’t have the money to pay for the bail, then ask help from a family member, a friend, or even a relative to bail you out. If they have no cash for your bail, then you could ask them to go to a bail bond agency who can post the bail for you.
However, this situation is a very rare circumstance though that only happens if the collection agency is very aggressive in pursuing you in the hopes of recovering some of their money.
Don’t let things get out of hand; always pay your debts on time. The situation may be farfetched, but it can go this way.
6 Tips To Bounce Back After You Are In Financial Ruin
If you have lost everything financially and are wondering how to deal with it all, you are not alone. Thousands of entrepreneurs have gone through the same situation and this has a lot to do with the state of the economy today.
People lose everything on a daily basis and this can be due to more mundane happenings such as divorce, medical bills, and overspending.
The good news is that you can bounce back and regardless of the reason for your predicament, the route to recovery is pretty much the same for everyone in this position. Please read this article for a way out of your current situation.
Step 1 – Acceptance
It is inevitable that you will feel sorry for yourself for a while and spend some time licking your wounds. Once this period has passed it is best to accept what has happened and start to think about what lies ahead.
If your position was compromised because of another person’s actions, do not waste time and energy plotting your revenge.
The best way to kick them where it hurts is to work your way back up the ladder and act as if nothing has happened. You need a good offensive strategy if you are to ever regain your self-respect and financial prowess.
Step 2 – Take Stock
Start to take a close look at what you still have and what problems still remain. Before you can make any plans, it is vital that you have an accurate idea of your real financial situation. Before any recovery is possible you should look at the following details:
- Do you owe money? If so, how much?
- What income are you still generating?
- How much do you spend per month?
- What is your credit score?
- Do you still have assets?
Step 3 –Objectives
You need to be pretty certain about your goal or objective, and by defining this you will have some idea about the efforts that are required. Build a financial road map that shows you where you are now and where you want to be.
Be specific in your aims and work out how much you need to earn along the way. Calculate the timespan that you think is realistic and have steps in place to check your progress according to the big picture.
Step 4 –Planning
Once you have a firm grasp of what it is you wish to achieve, and by when, you can then start your recovery plan properly. Tackle your debt if that is a problem and begin an offensive strategy that allows you to get off the starting blocks.
If you are paying off a lot of bad debts, use some of the money for a tax-deferred savings plan. This way you can start to feel a little better and will see some light at the end of the tunnel.
Step 5 – Action
At this point, you need to be back in business and that means a lot of hard work on your part. Your previous planning can only be realized through the action you are willing to take. As long as your plans were carefully drawn out, you should be moving towards your objective slowly but surely.
Step 6 –Adjustment
No matter how fantastic and realistic your recovery details may have been, you will need to make adjustments at some point. Life is never predictable, especially in business!
Calculate the changes that you need to make and do not drag your feet. Most business recovery plans fail at this point, so buck the trend and be ready to jump in and make those changes.
Learn From Mistakes
Once you have achieved your goal, just remember what happened in the first place. Use this knowledge to ensure that this pattern is never repeated – Good Luck!