No matter how vehemently others say, the size of your debt does not really matter when it comes to effective management of finance and debt. Small or big, all debts should be and can be managed just as the way you want to be if you have a strategic plan to keep it within your manageable limits.
- First, you will need to make sure that you do not ignore your debt payments and
- You must also make sure that you do not fall behind on it even for a single month.
Missing out even a single payment will result in penalties and charges for non-payment. This will be quite high and will be added with your outstanding amount as accrued interest charge and overdue.You will soon find your debt and yourself in a debt trap.
This will also eliminate the need to consider the different debt relief options, spend time in going through different ratings and debt settlement reviewsto choose a reliable company to work with and a lot of other hassles.
Debt and finance management process
Therefore, paying your monthly bills on a regular basis is essential for an effective debt management. However, this may not be easy if you do not follow a specific guideline and the steps that will lead you to financial freedom.
- Debt arrangement is the first steps that you should follow for repaying your debts on time and on a regular basis. For this you will need to arrange your debts first considering their rates of interest and then start paying them off serially from the higher interest leans to the lower ones or vice versa.
- Ensure that the minimum amount is paid on each of your debts so that you prevent the debt from piling up due to less payment and the accrued charges on such deficit amounts.
- When one debt is paid off in full you must repeat the process so that all your debts are gone eventually.
- Try to find out where you stand in your debts every month and also make a repayment calendar so that you know which debts to focus on to ensure that you pay back your debt on time and within the due date.
- Maintain the details of all your transactions when you pay your debts as well. Write down the checkdetails for each payment you made for each of your debts along with the date, the specific amount and others.
- Find out all those good debt accounts to ensure that these are not damaged if you have damaged some debts already. If you retain the positives of these good accounts you will be able to prevent your credit score to be further damaged especially when you face scarcity of funds.
- Always make sure that you have a specific amount of money set aside as your emergency fund when you want to manage your debts effectively. This will also help you to prevent from falling back on your debts.
- Start saving money with a small amount every month and increase it gradually and take help of your monthly budget for that matter. Always review your budget on a regular basis to ensure that you and your debt management plan are on the right track. This will help you to minimize any unnecessary expenses thereby adding further to your emergency fund.
Now that you have somewhat brought your debts under a strategic repayment process, you should focus next on your credit, especially if you have bad credit which can really affect your financial health drastically.
Managing your credit
There are ways in which you can manage your credit. These steps must be followed precisely and diligently and you will need a lot of hard work, effort, discipline and sacrifice. This is because the effects of bad credit can stay in your credit history for over a period of seven to ten years which is when the banks and other financial institutions purge the delinquent accounts automatically, provided that there are no errors in it.
- Consider the age of your debt when you want to do away with your bad credit. This is also the primary criterion to get your debts cleared serially. Usually, overstaying of these old credits will affect your credit score which is actually the result of faulty preparation of your credit report due to lack of receipt of the correct data on time by the credit bureaus. Take help of the seven year credit report clock for calculating the age of a debt.
- Sold off debts is something that you should focus next to work with your bad credit. However, there is no separate rule to determine the sold off debts. A debt can be sold or resold a number of times but once again the seven year clock will determine your delinquency for the specific loan with the original lender.
- Take out a copy of your credit report from several agencies and make sure you get different copies from different agencies after every three month cycle. This way you will have the full year’s report and for free. If you find that all of these reports are not identical then there may be a few errors in it.
- Old debts have a very high chance of having errors and when you dispute any entry on your credit report send it in writing to the credit bureau. Make sure that in your letter to the credit bureau you mention all the relevant details of the debts that you dispute along with the proofs and evidences. Always send the letter by general post and certainly not online to have a proof of delivery.
- In order to nullify the claims of the collections agencies you will need to send proper documents such as letters from the original lender, court filings and others.
The credit bureau will now ask the creditor to verify the specific debt and remove it from your credit report if it is found to be a technical error. Once done, you can now apply for a consolidation loanto get rid of your existing debts.
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It, also, becomes mandatory if you are burdened with huge debts.
Save money not only for emergencies, but to accelerate the debt management plan.
It will help you maintain good credit reputation and that will eventually support in clearing your debts timely.
Make Savings Plan to Reduce Debts
As you set a goal and save a few hundred pounds every month, you will be in a better position to make affordable debt repayments.
The best is to keep adding 1% or more as per your feasibility – every year you get a raise until you reach the set goal of how much you want to save from your earnings.
Using Home Equity Loan to Payoff Credit Cards DebtYou may be struggling to bring your debt level down if you have large outstanding balances on your credit cards.If you have been able to make only minimum monthly payments it could take years, or maybe decades, to zero out your cards.If you own your home, you have the option of taking out a home equity loan to payoff credit cards debt.But before taking any action always consider the risks associated and look out for other possible alternatives.What is a Home Equity Loan?Your home has accumulated equity over the years so a home equity loan allows you to borrow against that equity.For instance, if the current worth of your home is $300,000 and you owe $200,000 on your mortgage, you have an equity of $100,000.Based on your equity a bank, credit union, or other lenders may be willing to issue a home equity loan equal to some percentage of it.Factors, such as your credit score will decide how much you can borrow and whether you can get a loan at all in the first place.Pros of using a home equity loan to pay off debt?The main advantage of using a home equity loan to pay off credit card debt is that you’ll secure a much lower interest rate than what you are paying on your credit cards.For instance, the average interest rate on a home equity loan is average around 5 %, while the average credit card could be ranging more than 19%.When you use a home equity loan to pay off credit cards, it will also simplify your life, where you will have just one bill to pay each month instead of several bills.Earlier the interest you paid on a home equity loan was tax-deductible, which has been suspended, at least for the next few years.But credit card interest was not deductible.
Because of the Tax Cuts and Jobs Act of 2017, only if you use the loan to either buy, build, or improve your home that secures the loan then the interest on home equity loans was deductible.Now that provision is put on hold for at least until 2026.Cons of using a home equity loan for paying off credit card debtThe major snag of taking out a home equity loan to pay off debt is that your home would be on the line.As your home serves as collateral for the loan, the lender could seize and sell it if you are unable to pay back your loan.You’ll also face serious financial consequences, especially in your credit score when you can’t repay credit card debt.As credit card debt is not secured by your home, you’ll be at far less risk of losing your home.You can keep your principal residence even if you have to declare bankruptcy because of your debts.Is a Home Equity Loan the Answer?A home equity loan may be a good way to pay off high-interest credit card debt, provided everything goes as per the plan.
It can also cost you your home in a worst-case scenario.ConclusionOne alternative to be debt-free is to use a home equity loan to pay off credit cards.Compared to most credit cards a home equity loan generally charges much lower interest rates.The downside of using a home equity loan to pay off credit cards is that you could lose your home if you are unable to repay it.To decide if it’s a practical option, you need to identify how strong or how the week is your current financial situation.If you have a secure job or a means of a consistent flow of income and are confident that you’ll have no problem, keeping up with the payments, it could be ideal for you.But if your job is not dependable and you have no other financial resources then a home equity loan could be a risky option.https://www.compareclosing.com/blog/home-equity-loan-to-payoff-credit-cards-debt/
