Rising interest rates, multiple personal loans, mortgages, large credit card
liabilities and unemployment are making it increasingly difficult for people to
meet their monthly loan repayments that, in the good times, weren抰 a problem. If
this is your situation you will be all too aware that missing loan repayments
causes a lot of stress and will result in you developing a negative credit
history. This decreases one抯 credit worthiness with financial institutions and
therefore your ability to borrow. And access to credit and borrowing (used
wisely) is essential if you wish to create wealth using Other Peoples Money and
develop financial independence and later financial freedom.
Nowadays,
many people are going for Debt Consolidation Loans or what they call Secured
Personal Loans to get on top of their monthly repayment needs. Generally, these
types of loans are a last resort. Debt Consolidation can be used for reducing
your monthly debt payments but ultimately you end up paying more interest in the
long run. Secured Personal Loans are generally available to people who have a
poor credit rating. Secured Personal loans are taken against an asset (generally
your home) and therefore present much lower risk to the lender but much higher
risk to the borrower as you could lose your home if your defaulted on
payments.
Ideally before taking out a Debt Consolidation Loan or a
Secured Loan, you should explore other credit management options such
as:
1.0% Credit Card Balance Transfers ?this is essentially moving some
of your existing high-interest credit card debt to a new credit card provider
with a 0% interest rate. Typically, you will get 0% interest on balance
transfers of existing debt for 6-12 months. Used correctly, this is one of
cheapest forms of borrowing. But the one caveat is that you need to be sure you
can pay off the balance before the 0% interest period expires.
2.Paying
off Debt Using Savings ?it is a much better money management principle to use
your savings to pay off debt; the interest on savings accounts is always going
to be much less than the interest you pay on loans. There is little point in
having savings on one hand and personal debt on the other. When you think about
it, you抮e basically borrowing from yourself and paying interest for the
privilege which is pretty crazy! Having an emergency cash fund is generally
thought to be a good idea and I agree. However, one exception is where you have
personal debt and an equivalent amount in savings. In this instance, assuming
job security and future access to cheap credit is not a concern; it makes much
more financial sense to wipe out debt with your savings.
3.Remortgaging
?remortgaging (sometimes referred to as refinancing) is basically swapping your
mortgage from one lender to another. Your objective is to get a lower interest
rate from the new lender. Make sure to check if there are any charges for
switching. Remortgaging your home to pay off personal debt is overall a bad
idea. The primary purpose of remortgaging is to reduce your interest rate and
monthly mortgage payments.
4.Renegotiating ?everything in life is
negotiable, even debt! Only one thing worries a lender more than not making
profit and that抯 bad debts i.e. not been able to collect the capital amount lent
(never mind the interest). So, you can renegotiate interest rates, payment term,
fees, penalties etc. Never take a payment demand at face value. Ask and
Negotiate.
Be wary of debt consolidation and secured personal loans.
Taking on debt to pay off debt is ultimately a bad idea. Trying to borrow your
way out of debt could possibly lead to even greater financial difficulties.
Debt is not a problem but rather the symptom of overspending,
over-borrowing and under-saving. It is preferable is to cut day-to-day
expenditure and consider increasing the number of hours you work so that you can
earn more to pay of your existing debt. Also, why not look at providing more
value in your present employment and earn more this way.
Whilst the
above 4 credit management options give you suggestions on better ways of
accessing credit and managing debt, you really need to change your habits around
borrowing, spending and saving and investing money to truly get on top of debt
reduction over the long-term.
Remember, reducing debt may not happen
overnight but with self-education, some clever credit management techniques and
hard work you can eliminate debt faster and pay less interest as well. Why not
educate yourself more on debt reduction, money management and wealth creation
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