MANAGING THE DEBT TRAP: A SIX STEP STRATEGY
Managing the debt trap can be tricky and there are some things to watch out for in debt management. It seems that we will always want for something. Who has everything? Who can really say that they are very satisfied? The problem is that want can lead us to make purchases that our wallets are not able to pay for and too late we are up to our ears in debt! This is where debt can become our worst enemy.
I don’t know about you, but I suffered from the first day that I got myself a credit card. My mother had a credit card. My father had a credit card and as a young woman entering adulthood, I truly believed that a credit card was part of becoming a grown up. What no one explained to me was that when you use someone else’s money, you pay so much more than if you were to save up and use your own money. I know it is a simple principle, but sometimes one that you have to learn the hard way before you truly understand the concept. I mean, would you willingly throw $50, $80 or even $100 away? Absolutely not, yet every month that is what someone is doing if they have a credit card with a balance of $1500 or more. With the banking system the way it is, $50 disappears very quickly in interest and over the limit fees if you are unable to pay on time or remember what you’ve spent!
Avoiding some of the hassles of debt management starts with being a good record keeper so you know what you are spending; a solid researcher and firm negotiator so that you can keep bank fees to a minimum.
What are the things to watch out for in debt management?
Many people fail to communicate with their creditors and this can cause all kinds of trouble, especially if the non-communication goes on for a long period and results in the involvement of debt collectors. The cost of a phone call or two is far less than having to pay debt collectors’ agency fees. Most creditors are willing to renegotiate payment terms if you are in a crisis but only if you communicate directly with them.
PAYING ACCOUNTS LATE
It is a real trap to pay accounts after the due date as many creditors now charge late fees for payments, which can be quite hefty. If you are having trouble paying by the due date, phone and make arrangements. At least you can then turn around and say that they knew you were not going to be paying by the due date and had made alternative arrangements, saving you the fee.
BLINDLY USING DEBT CONSOLIDATION AS A POTENTIAL SOLUTION
Debt consolidation may be the best option, if you have multiple creditors, and especially if the interest rates on those debts are high, but should be fully investigated before adopting this option. Just paying what is due will never reduce the debt as this is effectively paying the interest only and not reducing the principal of the loan. As mentioned earlier, you wouldn’t normally throw large sums of money away, but if you have a large credit debt with a high interest rates this is exactly what you are doing. Try to combine debts into the one loan, preferably at a reduced interest rate, as at least this will reduce the interest and some of the worry of dealing with multiple creditors.
LOW INTEREST CREDIT CARD TRANSFERS
It may be beneficial to transfer balances to a new credit card, just so long as the interest rate is lower than the current card and you are not going further into debt. Where there is a six-month minimal interest possibility this is a window of six months where you can seriously attack the principal of the loan, so this option may be positive if you are able to obtain a second credit card at a lower rate. Make sure that you cancel the first credit card once there is a transfer of the balance, as keeping the account open is a guaranteed temptation to accrue even further debt.
NOT HONORING YOUR DEBTS FIRST
Too commonly, people who are in debt use money coming in to satisfy their wants first. It is important to honour your debts first before you satisfy new needs or wants, as this will reduce your overall stress.
WORKING SMARTER NOT HARDER WITH MORTGAGES
It is common knowledge that loans can be paid off more quickly by the simple process of paying more off your mortgage more frequently. Instead of paying your mortgage monthly, pay it weekly and add a few extra dollars and the life of your mortgage is going to be greatly reduced. A new service that mortgagees have available to them is the option to have a line of credit or equity style of mortgage, where all income is paid into the loan and then you are free to draw out as much of the equity of the home as you would like. This can be a real trap if you are not self-disciplined and when using the money from your equity if you could visualize that it is like taking one brick out of the brick work or a tile off the roof or a piece of furniture out of the house it will make it easier to resist the temptation to spend what you have worked hard to save.
In closing, if you feel like your life is spiraling out of control take the time to find a good financial or debt counselor. Bankruptcy is a very poor option, when a financial counselor can help you to dig your way out of the debt pit you’ve dug for yourself. There are many available within the community. If this is you, make the effort to seek one out. They can take a lot of the negotiating with creditors’ stress off you.
Wants will always try to undermine your life if you allow them to. Get on top of your debts by implementing this six-step strategy.