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Debt Recovery
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Today, people live in a materialistic world and the standards of living are far better than what they were a few decades ago. People do not believe in saving for a rainy day or living frugally. The aim of life is to live everyday as it comes, and in fact live on tomorrows income today. Due to this logic, people start spending on their credit cards and take mortgage on their homes. They purchase cars and houses on loan, thus building a nice debt.
Every month they pay installments toward these numerous loans that seem to grow bigger by the day. These monthly installments can never pay off the loans, and one seems stuck in a vicious cycle of spending and repayment. This is a moment of weakness and people fall for smart pitches by salesmen of loan companies or home based business that promise extra income to pay off ones loans. The individual then ends up taking a loan to pay off his debts, like refinance loans, or he goes for debt consolidation
The solution to get out of debt lies in knowing the basic concepts of financial management. These are available online at various financial self-help sites. One must be familiar with the basic terms of finance and then get down to reorganizing ones debts. It is possible to get out of debt if one analyzes ones monthly paycheck. One must examine ones expenses, income and identify a few areas where the expenditure needs to be cut. One must make a budget for the month and keep money aside for all monthly expenses. It is a better idea to keep cash for every week and once this money is spent, it implies no more expenditure for that week. One should however, keep aside money for emergencies like accidents and the like.
Firstly, one must stop spending on credit cards, so that new debts do not emerge. One must keep them aside for emergencies and give up all unnecessary cards. One must put aside a small sum from the salary aside at the beginning of the month for savings. One must pay more than the minimum balance for various credit cards so that the debts are paid off faster. Here one needs to prioritize and pay off the larger debts first. One must pay double the minimum amount on the card with the largest debt and the minimum amount on the smallest card till they are paid. This policy should be followed till all credit cards debts are cleared.
It is easy to get into debt, but takes some time to get out of debt. One has to take tough decisions on
the expenses that will be cut from the month. Here it is important to know the difference between needs and wants. Needs are important and cannot be eliminated, for example house rent or medical insurance This could mean eating out less frequently or not visiting those end of season sales. Since getting out of debt takes time, one must keep a positive attitude and realize that once the debts are paid off, one can use up the money to invest in stocks or property that will generate good returns in the future.
One needs to take harsh steps to get out of debt. If debts are huge, one can consider using ones house to get home equity to pay off those loans. One can sell ones car and opt for a cheaper car. If the monthly income is not enough to run the household, one can even take up to jobs for an extra source of income. One can start a small home business, or give tuitions on the side. One can work on a second job in a different shift than ones regular job. The second job can be teaching crafts to children, or babysitting. One must instill fiscal discipline in ones children too so that the whole family participates in the getting out of debt program.
A good idea is to opt for a debt consolidation program. In this, all of ones debts are combined and one has to make just one payment instead of paying different creditors. If one is not proficient in financial matters, one can seek the services of a credit counselor or debt management service in paying off ones debts. These people are skilled in framing a repayment plan and interacting with the persons creditors. They can bargain to get the lowest interest rate from creditors, thus resulting in substantial savings in interest payments. Since this is the first step towards better financial management, some creditors even reduce penalties and late fees on delayed payments, since they are now sure of a debt repayment plan. Moreover, they guide the individual on how to manage finances better in the future and usually charge a fee for their services. Nevertheless, the advantage is that one can lead a debt free life in a few years.
If one has been regular in monthly payments, or has a good rapport with ones creditors, one can negotiate with them for a flexible repayment plan. This is helpful since ones credit record remains unaffected and one does not have to take money to pay off ones debts. If one has a small number of creditors, one can also put a proposal for a lump sum payment instead of monthly payments.
The ultimate way to get out of debt is to declare bankruptcy. Individuals who are committed enough to pay back their debts or are behind their monthly installments on their loans can file for chapter 13 bankruptcy. Other conditions for this type of bankruptcy include being a co partner in a personal loan, or having filed for chapter 7 bankruptcies within six years. Individuals with a large tax debt can also file this bankruptcy.
Paying off debts takes time and can be hard on the individual. However, it is better to get ones finances in order with a proper plan in place, so that the cycle is not repeated. One must be prepared for these sacrifices for a few years, since the results will be positively good and take a huge financial and mental burden off ones shoulders. Hence, the key to get out of debt rests with the individual himself.
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