The concept of credit and debt has been around since the beginning of time. So it is not surprising that there are already many well-documented strategies to find a way out. The strange thing is that even though with thousands of years worth of lessons, people are still getting by with credit while piling up their debts. Here are some common ways to get out.
Enter the lion’s den
Ask the bank for help. If you contact your credit card company in advance about potential default instead of waiting for them to inevitably knock on your door, they are more likely to be more flexible to you. Other than demonstrating that you are an honest man who owns up, you are also, by definition, negotiating with them as a client rather than a defaulter as in theory you have not defaulted yet.
The wind will be behind you if you can pinpoint that your cash flow problems are only temporary. Trust me when I say that lenders prefer amicable solutions rather than bring a case into dispute. The work and resources involved in chasing debtors are just most costs that should be avoided when possible. Let’s not forget that going into dispute also creates a discontented customer who will go all out on Facebook and Twitter to bad mouth the lender.
You will be asking for a hardship program or a payment break while you build up your personal cash reserves again. The worst that can happen is to be declined. That is not too shabby. What is likely to happen before they come up with a special repayment plan or even a structured settlement for you is request that attend credit counseling regarding debt management.
Musical chairs payments
To avoid your debts from compounding like a virus, you have to be smart in where to channel all your remaining free-cash. The goal is to avoid piling up additional interest and other charges. The first things to pay off are the cards with the highest interest rates. There is no need to explain why. Then repay the minimum sums of all bills starting with the ones with the closest due dates. The biggest fees usually comes from late fees and higher interest due to late payments. If you are committed to making lifestyle changes, your debt will be gone very soon as you continue to pump in the extra cash weekly from account to account.
On the other hand, you can also consider the tactic of paying off the cards with the lowest bills first. This will only be worthwhile if the outstanding balances are low and can easily be fully cleared. Doing so will give you one less problem and one less enemy. Having less creditors will also show that you might not be as bad the paymaster you are perceived to be. You have to weigh up the pros and cons and decide for yourself whether to go for high interest first, or low balance first.
Don’t lose your shirt
Debt consolidation
Very little people will argue about the benefits that comes with consolidating debts. Especially when they are the ones with 8 financial institutions to fend off. Remember that taking up these loans will have to make sense. It should either save you money or alleviate your headaches of dealing with all the big lenders in America.
In most cases, you will end up paying more than if you remain in your current financial position. But with a lower monthly financial commitment via a consolidated debt, you will be better able to manage your cash flow in the short to medium term. At the same time, you will avoid getting pounded with bad credit records as you will have repaid all your outstanding loans and credit card bills.
You can also be your own debt consolidator by drawing on an unused credit line and use everything you have to repay all existing creditors. You will then be left with only the one credit line to manage. But be mindful that you might be labeled as a credit revolver from now on.
Some people take up unsecured personal loans to do the same thing. Just remember that if you are to go this route, you will probably need a good credit score to get a personal loan approved. Meaning you will have to undertake this before you go into default.
Balance transfers
A lot of lenders offering balance transfers used to have very low introductory rates. It is not as common as it was when they were all the hype. But if you try hard enough, you will finds very good deals that make it look like free money. Low introductory rates work in a way that a minor interest is charged on the initial period up to 12 months. After which, the floodgates open. You can of course, choose to redeem it when the time comes.
If you are going this route, maybe it would be wiser to accept a deal that has a fixed rate throughout the term of the balance. Such structure could mean that you are paying more than what is available, but you will not have to worry about transferring balances every once in a while. And who is to say that your applications for new transfers will be approved in future.
Home equity loan
Other than personal loans, another common facility used for debt consolidation is a home equity loan. This is basically the act of releasing cash that is trapped in the value of your house. It is popular as home owners have the mindset that they own the equity anyway, so that are not really borrowing above their means. And since it is a secured loan against the property, borrowers will also be subject to lower interest rates as there is less risks when a valuable asset is involved as collateral.
Lenders can either grant you either a term loan or a line of credit (HELOC) based on a percentage of the property value. But you could be subject to closing costs like appraisal fees and attorney fees unless the lender subsidizes them for you. Take note that you are putting your home at risk when you decide to go with this. Continual defaults will mean the threat of foreclosure.
Family loans
People are either open to borrowing from family members or completely despise it. The simple reason being that money issues can put relationships at risk of falling apart. The other thing is that a borrower might get more complacent in repaying a family member compared to a bank. They don’t have late fees to worry about and in most cases don’t even charge an interest. Being so flexible with a borrower just encourages them to get into the same financial situation again in future.