Understanding and Managing Debt | Seven Tips to Save on Groceries | Teaching Children About Finances | Online Fraud and Identity Theft | Stretching a Dollar During Recessions | Steps to a Workable Family Budget | Debt Collection and Credit Reportin
Understanding and Managing Debt
When you owe money to someone, you are in debt. You choose to borrow money for any number of reasons including wanting to purchase a home or a car, starting up a business, or even to pay off other debts. Being in debt is neither good nor bad. When you practice proper budget planning and debt management, you can successfully use debt for its purposes without allowing your debt to become an overwhelming burden.
Note: Some financial advisors separate debt into two classifications: Good tangible, investment debt (home mortgage, car loan, and student loan), and Bad discretionary spending debt (credit cards and retail store accounts).
When you apply for a personal loan, it is important to understand all the facts pertaining to your financial obligation. For example, you should know the terms of the debt, such as the interest rate, payment frequency, loan repayment period and applicable consumer debt liability laws. You should also be well aware of what happens with the collateral you use to secure the loan should you default, whether repayment plans are negotiable, if you can pay the debt off early without penalties, and what are your options should you encounter a financial crisis.
A good way of making sure your debt is under control is to plan your budgets. Make paying off your debt a priority, making consistent, regular monthly payments. If you plan how you will disburse your income, setting aside money for your debt, paying off debtors becomes an easy, systematic function. Use online tools and software for personal budgeting and money management to help in this regard.
One type of debt consolidation involves obtaining a single loan to pay off other debts. This may be an acceptable option for those who face multiple debts at different interest rates. For example, you can negotiate a larger mortgage to pay off personal loans and eliminate high-interest credit card debt. Although secured consolidation loans may offer lower interest rates and can help simplify the debt management process, converting unsecured debt to secured debt must be seriously assessed as an alternative.
Proper Allocation of Resources
One way to reduce your principal is to channel your savings towards paying off your debt. When you have excessive debt, saving for wealth accumulation purposes should take a backseat on your priority list. Keep in mind that interest you might be earning on a secure savings account is probably lower than the interest payable on your debt. For example, the average interest for $10,000 of credit card debt, can 15 percent or higher, while the interest rate for a $10,000 high-interest CD savings account is only around 4 percent or less.
It is always a smart idea to plan your loan repayments. A useful tip is to make extra repayments when possible to secure yourself against rocky times when repayments may be difficult. Place repayments on consumption loans at the top of your payment list because consumption loans, such as personal loans, usually command higher interest rates. Whatever your strategy, do not delay required repayment negotiations.
Most non-profit consumer credit counselling agencies offer personal debt counselling, free of charge. The credit assistance phone lines of these organizations can help you with budgeting for your debts and provide advice to manage repayments. Certified counsellors can also help you confront debt collections, deal with personal problems, including gambling addictions, and help examine bankruptcy as an option.
Know Your Rights
Be aware of legal rights and protection that are available to debtors -- especially if debt collectors are chasing you to collect late payments. Debt collectors surpass their legal boundaries if they threaten, coerce, deceive or harass you. The Federal Trade Commission oversees the adhering of the Fair Debt Collection Practices Act (FDCPA), which contains guidelines regarding debt collectors’ boundaries. Report any violations of your rights to the Federal Trade Commission (FTC) at www.ftc.gov/.