Managing debt becomes difficult during economic downturns. In challenging financial circumstances, debt relief options can be few. It’s natural to assume that things will improve during economic downturns. No matter what happens in life—whether you lose your job, get sick and miss work, or have to cut back on your overtime hours—the bills still have to be paid monthly. You eventually learn that extreme circumstances often necessitate equally intense responses. In the hope that you can return to normal and pay off your debts fast, maxing up your credit cards or taking out a loan is not a viable solution.
Sometimes the best-laid plans don’t work out. It’s possible that you won’t be able to find another employment or that your firm will permanently reduce your overtime hours. Debt is difficult to repay even if your financial condition improves and your income increases again.
Making your regular monthly payments on time is, without question, the surest path to debt freedom. Please don’t dwell on the fact that it will take a long time to complete. Put aside monthly money, and treat it like a mortgage or rent payment. You must accept that you can’t use that money for anything other than paying off your debt.
If you doubt your abilities to accomplish this, you have three alternate routes to pursue. Remember that none of these solutions should lead you to believe you can immediately resume your spending patterns. You’ll need to adjust your mindset about debt even after the law goes into effect.
Consolidation of Debt
The primary benefit of this approach to debt management is the ability to consolidate various more minor obligations into a single manageable monthly payment. In addition, if you can consolidate your commitments and get a loan with a reduced interest rate, you will save money monthly. This is especially useful if you have lesser debts, like a credit card or car payment, with a higher interest rate. Having a single monthly payment instead of multiple smaller ones spread throughout the month is also helpful for keeping track of bills.
To be successful with a debt consolidation loan, you must be consistent in your payments and avoid accruing any new debt until the consolidated loan is paid in full. One piece of advice is to store your credit cards somewhere you’ll only be able to get to them in an absolute last resort. If the temptation is too high, it may be best to break them up. Don’t give in to the urge to ‘charge it’!
Getting a debt consolidation loan is tempting because of the relief from having fewer monthly outgoings and only one payment to worry about. The temptation to incur further debt may arise as a result. Don’t even think about doing it!
Refinance Your Debts
Making your financial hardships known to your creditors increases the likelihood that they may consider renegotiating your debt. They may appear to be doing you a favor by renegotiating your present debt load, but they want your money. Instead of risking obtaining nothing if you default on your loan or file for bankruptcy, they will renegotiate your current debt to ensure they get at least some of what they are owed.
Extending a loan’s repayment term is a popular debt renegotiation method. The financial institution will receive the same amount of money plus interest, but your payments will be lowered. One more is to talk your lender into letting you temporarily suspend payments while you get your financial bearings. The problem with both of these choices is the higher interest rates you’ll have to pay throughout the loan.
Remember that renegotiating your debt is not rocket science. Keep paying your payments on schedule each month if this is what the lender is willing to do; otherwise, you’ll be doing further damage to your credit score.
Filing for bankruptcy should be your last resort if neither of the first two options is feasible, given your current financial condition. A person declares bankruptcy when a judge determines that he or she cannot, and will not be able to, pay off all or a significant portion of their debts. It doesn’t matter if you file under Chapter 7 or Chapter 13, you’ll have to give up everything, and your creditors will have to take whatever they’re given. You can declare bankruptcy on your own accord (voluntary bankruptcy), or the court can do so for you (forced bankruptcy) if it determines that you cannot pay your debts.
The downside of this strategy is that you will lose everything you own if you file for bankruptcy. This includes your home, if you own one, your car, and any savings. Another drawback of bankruptcy is that it severely damages your credit and makes it difficult to obtain credit for many years after you file. Because of these drawbacks, bankruptcy is not the best option for getting out of debt. However, it may be the last recourse for those who have exhausted all other options to escape their mounting debt.
You are free to proceed in any direction you see fit. The bottom line is that you should do all in your power to get out of debt and stay out of it, no matter how much it may cost.
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