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Allowance for Bad Debts
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Majority of people would rather ignore debt than attempt to get rid of it. Unfortunately, it is precisely this thinking that probably creates the debt in the first place - an unwillingness to grapple with reality, to look at all options available, and to take a reasonable, corrective course of action.
If you've already built up giant piles of debt, but have no reasonable ways of paying them off in the periods specified by your creditors - if you're already beginning to ignore and default on payments - then it is an ideal time to do something about this problem. In case if you don't your credit will slowly shrivel away - and for no real reason at all - then you need to consider using some form of allowance for bad debts consolidation. Now, what's crucial to note is that you have several, not one, means of obtaining a allowance for bad debts consolidation. A good place to begin, though, is to take a general survey of your debt to determine the amount you owe, the amount you're delinquent on (should have paid), and what your interest rates and payment schedules are for all of your sources of debt. In case if you're not delinquent on any payments yet, but things are spiraling out of control, that's actually good news. You more than likely have good credit at the moment. This clearly pinpoints that you can use credit card consolidation as a means of bad debt consolidation. You should begin by finding and applying for several 0% APR trial-period cards. Once you get these cards, you will want to use the transfer balance option to move debt from your current cards to these 0% APR cards. This will offer you to simply make the minimum payment each month for the entire year without accumulating bad credit or interest. As a matter of fact, your credit will actually improve by making minimum payments. Now, this takes care of your unsecured allowance for bad debts - or debt not backed by securities, such as a home but on the other hand for your
secured debt, you wont be able to use a credit card. Instead, you'll have to opt for a bad debt consolidation loan. If your credit is still up to the mark, this wont be too hard. If you've already defaulted on number of payments, you will want to contact a debt consolidation company and talk to a debt counselor for free. He/she will take into perspective of all of your current debts and then help you find a best course of action. In large number of cases, the debt consolidation company will even bargain with your creditors on your behalf, getting as much debt canceled as possible. One thing you will want to take into account carefully when entering into a bad debt consolidation contract is what your monthly payments will be and what your interest rate is. In case if you were already struggling with payments, it is probably a good idea to go with the lowest payment plan available (i.e. the longest contract) and the lowest interest rate possible by putting up securities as collateral. If you follow the guideline outlined above, you should have no problem consolidation your debt and starting down the path to a debt free life - or at least a considerably less stressful one. Good Debt vs. Bad Debt. Majority of you may be saying what is good debt and what is bad debt Well let's begin with debt. According to Webster's dictionary debt can be defined as, "something that is owed or that one is bound to pay to or perform for another or a liability or obligation to pay or render something". Is debt really good, in reality its not but the term "good debt" will be used here for illustration purposes. Theoretically speaking good debt is anything that you can't afford to pay for up front but have the money to pay for on a schedule such as a mortgage or home equity loan. On the other hand bad debt is anything that you can't afford to pay for up front, that is usually something you want instead of something you need, or you can't or didn't save up the money to pay for it so you apply for a loan or charge it. The most general form of bad debt is a credit card. It is of utmost importance that credit cards should be used with discipline. The ideal way to establish and maintain good credit is to purchase something with a credit card and then pay off the balance when the bill arrives. This clearly depicts the credit card company that you pay your debts on time and are a responsible shopper. Other instances of bad debt are cars and personal loans. I know you are saying, but I required car! Yes a lot of us required a car to get around but you don't have to buy a new car. Remember that the value of a car starts to depreciate as soon as you sign the paperwork. It is better to purchase a used car and finance it for one or two years or save money to buy the used car in cash. Instances of good debt are a mortgage and business loans. Some other financial experts may disagree and include car loans with this but fact remained that you can borrow against and that has a monetary value is a good debt. The value of a car only minimizes so although the car has a monetary value, that value is less than the original price paid for the car. An exception to the above points is student loans. Student loans can be termed as a good allowance for bad debts because the end result is furthering your education which results in a higher paying job (monetary value). In simple terms the money from that job can be used to pay off your student loans. Few of you may say I can borrow against my credit card to get a cash advance; but it is still a bad debt because you didn't have the cash up front and you will be charged a higher interest rate and fee to get the cash advance. In addition, the value of cash does not increase unless it is in a mutual fund or investment.
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