Tips And Guide For Debt And Loan Management

The first to fall is the credit card domino. Your lack of funds causes you to begin to take cash advances to pay your minimum balances or basic living expenses. You know that your gold card still has about $5,000 left on it, so you begin to use it to live on. Or, even worse, you begin to accept all of those credit card offers that come in the mail, and before you know it, you have 10 open credit cards.
You take out $100 here and $500 there. “No big deal,” you think. After all, you are used to paying off your cards, or at least paying enough that the debt has not, so far, seemed burdensome. You begin to rationalize. You tell yourself that you’re just in a temporary cash crunch, that this is why credit cards were invented. Feeling better, you take out another $500………….

How serious are your debt problems? The spectrum of possibilities ranges from negligible to severe. The fact that you bought this site indicates that debt is something you are concerned about. As you read this chapter and review the most common signs of debt problems, consider that the more signs that apply to you, the more serious your situation is.
The first sign that debt is becoming more of an issue in your life than it should be is the incredible shrinking bank balance. Although you make enough to pay your regular bills, more and more of your monthly income goes toward servicing your rising debt. It gets to point where money is tight, and you feel like you are choking because there is never enough money. Unfortunately, this situation creates a negative domino effect upon the rest of your financial life.

The goal of this site is to help you get out of debt within the context of making your life work. You will not be asked to make radical, unreasonable changes in your life because doing so rarely works. Instead, important, sometimes gradual, small but significant changes can make a big difference.
If you are going to start getting out of debt, you have to stop going into debt. One way to start is to begin to wean yourself from the credit card teat if you think that is part of your problem. You don’t have to cut up all your credit cards; that would be impractical and unreasonable. Start slowly, but build up to it and get strong. You can do it.
When you are behind on a debt like a car loan, home loan, or child support, it is called being in arrears. only way to stop going into debt is to stop going into debt. You might as well start now because the sooner you start, the sooner you will get out of debt. The longe you wait, the longer it will take.
In subsequent sections, we will show you how to easily trim your budget (well, almost easily) so that you need not incur more debt to stay afloat. But begin now. You are going to have to stop sooner or later. Down the road you will see that this is one of the most important steps you can take in getting out of debt. You will thank yourself for this gift. Remember the ultimate rule of holes: Stop digging!

If you want to prosper financially, there are plenty of debts that you will want to wipe out. The most obvious are those where you are paying high interest and penalties, things such as credit cards, lines of credit, taxes, or any other debt that is much higher than inflation, you need to prioritize certain debts and pay them on time:

• Rent or mortgage. Make paying your rent or mortgage a top priority. Payments on a home equity line of credit or second mortgage are also essential because you can lose your house if you don’t pay.

• Car payments. Make the payments. If you don’t, the car will be repossessed.

• Utility bills. These services are important, and the bills usually have heavy late payment penalties.

• Child support or alimony. Not paying these debts can land you in jail.

• Taxes. Taxes may be put off for awhile if necessary, and we show you how to do so later on in the book, but if the IRS is about to take your paycheck, bank account, house, or other property, you should set up a repayment plan immediately.

One thing that could be said for bad debt: You know it when you see it, and it certainly can be obscene. Bad debt seems impossible to pay back. You create bad debt when you charge things you don’t need or when you borrow for things that you consume quickly, such as clothes, meals, or vacations. The things quickly disappear, but the debt has a nasty habit of sticking around, seemingly forever. Bad debts can become very bad debts because of interest and penalties. For example, if you buy a CD player for $200 and don’t pay it off by the end of the year, and your credit card company charges a usurious 20 percent APR (20 percent per year), you owe $220 by the end of the year. If you do this with five items, you owe $1100, and that’s a lot of money.

You can create bad debt when you agree to pay these crazy interest rates that some creditors charge, because the debt seems to grow exponentially. Credit cards are the prime culprit, but they are by no means the only one. High interest can also come with personal loans, business loans, or unpaid taxes. You probably purchased this book becaus you have a lot of these bad debts, debts you are having a difficult time handling and that cause you anxiety. They are the debts you avoid thinking about, the phone calls you don’t answer, and the bills stuck in a pile. Avoidance dances with guilt only to be tapped on the shoulder by your new suitor, fear.
You know what the bad debt dance looks like, anyone reading this book does: New bills are coming in before you’ve cleared out those from last month. You’re surprised to find that the phone bill is still unpaid. Somehow the dentist was never sent his check. You know what past-due notices look like. Your Visa and MasterCard bills include late payment penalties. The hardware store sends a letter telling you you’re past due and requests that you send a check at once. There is more month left at the end of your money, and payday seems far away. Worst of all, these things don’t surprise you anymore. Avoidance is a common coping mechanism to deal with a budget that doesn’t balance. The problem is, it can create even more problems than you already have: Your property could be repossessed. The finance company can come take your car. The electronics store can come take its TV back. You could get sued. If that happens, your wages could be garnished, or your bank account could be levied upon. Imagine your surprise when you go to get that $1,000 out of your checking account to pay your mortgage and you find that it has been seized by one of your creditors. A lien can be placed on your real estate. Failure to pay a bill now means that a creditor can get a judgment against you and force you to pay it later when you sell your house, only then you will pay it with 10 percent interest per year.
Loss of services. You could lose your insurance or your utility services if you avoid paying those bills. Yet, as much as you have been avoiding the problem, the truth is that your debts are neither crushing nor hopeless. They are simply a problem—one for which there is a solution. But no one ever eliminated a problem until he or she recognized and admitted that there was a problem. You began to do that the moment you bought this book. As you read it, you will need to begin to formulate a debt-reduction plan that will work for you. As you do, you need to determine which debts are necessary and which are not.

Debt that helps you, enriches your life, is manageable, and is not a burden can be called good debt. For example, student loans are good debt if they enabled you to get through school and further your life goals. They are bad debt if you dropped out of medical school after one year to become a writer. A good debt helps; a bad debt hinders. We want to help you get rid of that bad debt.

Other examples of debt that may be considered good include

• Home loans. A mortgage can be a great debt. Not only does it permit you to own your own home, but it also allows you to build home equity. It is an asset. People who are not financially savvy pay interest and create money for others. For example, charging groceries means that you will pay about 17 percent interest on items that will be consumed within a week. A financially literate person would never do that.

• Car loans. A car loan can be a fine debt because you get something long-lasting out of the debt. If you need a nice car for your job (if you are a real estate agent, for example), a car loan may be considered good debt because it helps you in your career. However, a car loan that you cannot afford is a bad debt because it detracts from your life.

• Business loans. If you can service the loan, and it helps you make more money, the loan is good debt, but if the loan is nothing but a source of problems for you, the debt is bad.

• Credit cards. Credit cards are fantastic. They are convenient and easy. They can help finance a business or even medical emergencies. The problem with them, as you probably know only too well, is that it is too easy to fall under their siren spell and get in over your head before you know it. That’s when they begin to hurt your life more than help it.

People who are not in debt think about and treat money differently than the rest of us. They know a few things about money and debt that escape the rest of us. Let’s call them the “financially literate.” If you can begin to relate to money as they do, you will be well on your way to a life that is not only debt-free, but also prosperous. What we hope to do in this book is to show you some of their secrets so you can adapt a few of these ideas and tools to help you get out of debt.

The average millionaire in the United States drives a used car that is several years old and owns his own business. Rich people tend to be those who do not spend money.
Do not feel too badly if you are not good with a dollar, a lot of people aren’t. Money literacy is not taught in schools, and too often parents are too busy trying to dig themselves out of their own financial hole to help much either. Yet, unfortunately for many of us, we learn more about money from our parents than anywhere else. The good news is that learning how to get out of debt and become more financially literate is not all that complicated.
The first step in the process is to figure out how you created so much debt, because if you don’t figure out how and why you got yourself into this pickle, you might get out of debt, but you certainly won’t stay out. So the first question to ask yourself is: Why did you go into debt in the first place?
Sometimes going into debt is unavoidable, but often it is not. When money is tight, you have several options; going into debt is just the easiest. Instead of choosing more debt, you might have decided to work overtime and make more money, or possibly you could have tightened your belt and spent less money. Debt was not your only choice. There are many reasons people go into debt: some are good reasons, and some are bad. It doesn’t matter. Did you buy luxuries you could otherwise not afford? Did an illness or a divorce set you back financially? Was debt your way of dealing with some other sudden, unexpected expense? When you look at the reason why you went into debt, the important thing is to notice whether your spending habits follow a pattern. If you can see a pattern, you need to address that pattern as much as the underlying debt. They both make a good living: he’s a psychiatrist, and she’s a psychologist. They have two kids to whom they are devoted. They send both to private school, which costs a total of $15,000 a year, and both kids go to summer camp. This expense adds up. Mark and Diane don’t buy luxuries, they don’t travel much, and, except for the kids’ expenses, they are very frugal. Yet the only way they can pay for everything is by going into debt. They use their home equity line of credi and credit cards to stay afloat. Although they would like to move to a less expensive neighborhood, they can’t because they have no equity in their home, so they are stuck. What are they to do? If they are going to get out of debt, something in their lives is going to have to change. The private school is going to have to go, camp may be out, or they are going to have to start making more money. The same is true for you. If you want to get out of debt, you are going to have to identify why you went into debt and change that behavior or pattern.