Things to Avoid When in Debt
There is no official guidebook for getting out of debt. The indebted are largely left to fend for themselves with their own means when the red notices start coming. However, as with anything, there are a number of things debtors should do, and more importantly, shouldn’t do. Whether debtors get out of debt in a matter of years, or end up being indebted forever, depends on these.
The first thing most people forget about being in debt is that it’s something that happens to everyone. Most debtors find it difficult to come into terms with the fact that they are in debt. People ignore debt, and then end up sinking further in debt. Instead of denying debt, accept it as a fact of life. People who do not belong to the one percent have to take out loans to pay for college, new home or cars. Sometimes, when incomes fluctuate, it’s difficult to repay these loans. That’s when people become steeped in debt.
No matter how deep one gets into debt, there’s always the possibility of getting out of the situation. Another mistake is that most people think it’s not possible to renegotiate the terms of a loan contract. Loan contracts are not set in stone. State and federal laws allow debtors to renegotiate terms of debt if the debtor is unable to meet the financial obligations stated in the contract. In some extreme instances, the law demands that the creditor forgive the debt. In other scenarios, the creditor could legally be forced to reduce the amount of debt. For people who are in debt because of payday loans, the legal avenues will be able to get the creditor to lower interest rates.
Also, bankruptcy is another option most debtors fail to see at first. Most debtors fear bankruptcy as it can ruin credit histories. However, under Chapter 13 bankruptcy, debtors are allowed to repay the loan in partial or at lowered interest rates. Once a debtor starts repaying, bad credit can improve. Local attorneys will be able to help debtors with specific state laws that favor the debtor.
Other than a legally mandated debt settlement, the indebted can also consider debt consolidation if struggling with multiple debts at once. For example, if a household has trouble paying down a student loan debt, a mortgage and a payday loan, it might make sense to combine all these loans into one and pay a single monthly lump sum. However, for low-income households, this might not be an option as the lump sum usually tends to be quite high.
The easiest way to pay down debt is to start paying off highest interest generating debts first, and seek extensions or grace periods for lower interest loans. Usually, if the interest rate is low on a particular debt, that mostly likely means the loan is secured. It’s much easier to renegotiate secured loans than non-secured ones like personal installments loans.
Ultimately, debtors will have to make major lifestyle changes to pay down any debt. This means making cutbacks across household expenses by eliminating all unnecessary expenses. Extreme frugality for three or four years is worthwhile if it helps someone be completely debt-free.