When you have a lot of debts it is difficult to manage them. And very often you cannot afford sum of money you have to pay. In these cases people start to panic. There is a lot of information in the internet that frightens people. If you don’t pay your bills, scary collection agency will come and will take all your money and property. In facts it is dangerous to have debts and you really can lose your property, but only if you do nothing. First of all you should understand that company you owe money, wants to get them back, and they don’t need your house or car because it is difficult to sell it and get necessary amount. There are a lot of programs that were created to help people like you to handle their debts.
How to pay off debt
Let’s explore the most effective:
First of all it is interest rate arbitration. Also this program is known as consolidation, you choose a third party and it negotiate with your creditor to allow you lower interest rate. Also you will be able to combine your bills into one. There are following benefits of using consolidation: you will get low interest rate, you will be able to make single monthly payment, not several, and you will be able to improve your credit score.
Debt management is also very popular solution. It meant that you have to deal with the company which will help you to pay back your debt and create a budget. Advantages are following: you make lower payments; fees that you pay when you can’t meet terms of payment can be waved off; and company will help you to manage your multiple bills.
Debt settlement is the next program. According to it you deal with settlement company. It contacts your creditor in order to lower your pay off amount by 40-60%. Your benefits will be following: lower interest rate and your balance will be cut.
Chapter 13 bankruptcy. Court will control your debts payment plan. In this case creditors will reduce interests on your payments, your principal balance will be cut and you don’t use your assent to pay off the debt.
And at last chapter 7 bankruptcy. If you choose this program, you hand over your assents to the bank representative. They will be sold out and your debt will be paid off with help of this money.
Self repayment plan. You will have to develop a plan how to manage your budget in order to pay off outstanding card balance. You won’t use any professional help. It is difficult to keep this plan but it is rather effective and you don’t spend additional money for mediator.
The last one is ostrich method. Nobody will advise you to use it. You don’t need to do anything, you don’t pay off your bills, just ignore them and hopes that it will disappear. In this case you may deal with collection agency or ruin your credit history.
I want to pay special attention to debt consolidation. This method will allow you to save more. Do you know how this system works? In general words it is a situation when you have several credit account accounts and you have to pay for each of them every month. When you apply for debt consolidation, you combine your accounts into one and your interest rate becomes lower.
Let’s see how it works.
For example you have three credit cards and medical bill.
Outstanding balance on credit card 1 is $25000 and your APR is 15%.
Outstanding balance on credit card 2 is $40000 and your APR is 20%.
Outstanding balance on credit card 3 is $15000 and your APR is 13%.
You owe for your medical bills $10000 and your APR is 12%.
In this case your average percentage rate = (20% + 15% + 13% + 12%)/4 = 15%.
When you take part in consolidation program, your third party can negotiate to:
Credit card 1 APR is 11%
Credit card 2 APR is 16%
Credit card 3 APR is 10%
Medical bills APR is 9%
Now your average interest rate = (11% + 16% + 10% + 9%)/4 = 11.5%
Let’s see how much you can save every year. ($25000 + $40000 + $15000 + $10000)*(15% - 11.5%) = 90000*3.5% = $3150
Here you will find more benefits that you get choosing debt consolidation program.
Rate reduction. As it was described in previous chapter when you combine all your bills, your mediator can negotiate with a creditor and offer you lower interest rates.
Debt repayment plan. Your creditors or collection agency (if your debt had already been sold out) will offer you this plan. According to it when your interest rates are lower, you pay less every month and now you can afford to make at least minimum payment. Or you even will be able to cover your principle balance and maybe some interests.
Single monthly payment. Now you will be able to make one payment every month instead of several payments for every bill. That your funds will be distributed between your creditors.
Reduction of late fees. If you can’t meet terms of payment, you get penalties, late charges fee that add value to your debt. After negotiation your creditors may reduce this payments or eliminate them.
Get debt free faster. If you use average credit program, it takes you about 20 years to pay off your debt. But when you choose debt consolidation, you can do it in 4-6 years. It is possible if you may a little bit more that minimum payment every month. And after consolidation when your fees are lower, you manage to pay back total amount faster.
Get rid of collection calls. When you join to debt consolidation program, your creditors and collection agencies are prohibited to contact you.
Improve your credit. When it is easier for you to meet payment terms, you will be able to re-establish your credit history. Timely payments and paying off your debt in time will show how responsible you are.
Free debt counseling. Every company that provides you with debt consolidation service offers free debt counseling. They will explain you your situation and will describe all available methods to correct it. And you will choose the most appropriate one.
It is difficult to manage your debts, but you always can contact specialists that will help you in this situation.