Ever been stressed out about something so bad that it consumes your every thought? For example, you may lose sleep thinking about a doctor’s visit coming up, a job interview, going to court, etc.
Now imagine that feeling of relief once said task is completed. It is as if a huge weight has been lifted and you ask yourself why you even stressed about it in the first place.
The feeling of debt relief is exactly that, an overwhelming feeling of knowing you have your finances in order. You may still have debt of course, but let’s face it…we live in America and it seems to be the standard.
Debt relief is considered a broad term that encompasses a variety of methods for reducing or eliminating debt.
Take It Seriously
It is imperative to take your financial spending seriously if you truly want debt relief. It takes years to eliminate all of your debt and will be worth it, especially if you started now. This time next year you will be even closer to being debt free.
The average American individual has approximately $59,000 in total debt. This debt may include credit cards, mortgages, student loans, private loans, etc. The average American household has just over $100,000 in debt.
Consider using a loan calculator to determine how long it will take to pay the debt off. Search the internet for some, there are plenty.
Now, if you had $8,000 in debt at 18% apr paying $200 a month minimum, it would take 26 years and 8 months to pay off. In total, you will have paid over $11,400 in interest. Let that sink in…
Credit Cards Are a Necessary Evil
The problem with people getting so fast into debt is that it is quite easy. The big issue with debt starts with obtaining bad debt, aka, a credit card. These devilish pieces of plastic should only be used in an emergency or when building your credit.
“He who is quick to borrow is slow to pay.”
– German Proverb
People tend to max out a card and make minimum payments for years on something they don’t need. Before that card is even paid off you will have paid so much in interest that it paid for your items multiple times over. Most Americans have multiple credit cards with various payments and interest rates.
The trick to building your credit with a credit card is making sure you pay it off on time. Avoid paying minimum payments and try to pay the card off shortly after you used it.
If you have $200 laying aside, use your credit card to make a $200 purchase, and next month pay it off with the original $200. This is a great way to build up your credit. If your credit is not a concern, then try avoiding a credit card altogether.
Bad Debt
Bad debt is caused by using a credit card and is commonly used for non-essential things like shopping sprees, vacations, and electronics. These types of purchases depreciate and do nothing to contribute to your overall net worth.
Examples of bad debt are:
- Credit Cards
- Payday Loans
- Personal Loans
- Unsecured Debt
Stay away from any bad debt right from the start, because eventually, you may be in too deep, unless building credit. This is why paying off your credit cards asap is necessary. Paying off bad debt quickly will improve your credit rating.
Good Debt
Good debt gives your net worth the potential to increase over time and comes from things that appreciate. A home or business is considered an asset because you can make money from them.
Examples of good debt are:
- Mortgages
- Student Loans
- Business Loans
- Secured Debt
When borrowing money always consider whether it is good or bad debt. Saving up to buy something is always the best way to make a purchase however, it is not always practical or realistic. Just make sure to pay off the bad debt immediately to secure better apr with future loans.
Consider Debt Consolidation
One step towards debt relief is consolidation. Consolidating your debt into one monthly payment and one interest rate can be a way to pay off debt quicker.
Reduced Monthly Payments = SAVINGS
With debt consolidation, you will not only be able to pay off debt earlier, but it will help raise your credit score. Making these payments on time will make it easier to qualify for future loans.
Instead of multiple due dates and interest rates, you now only have to worry about one payment which can help reduce stress and make finances easier to manage.
Settle Your Debt
A process that involves negotiating with a creditor to accept less than the full amount owed. It is highly recommended to go through a lawyer to help with the process. You may know somebody who will gladly help however, there are always free attorneys you can look into.
It may seem like a scary process, but it is not. It just means you will be able to pay your debt off faster and focus on something else in life. What is scary is only being able to pay the minimum payments, especially on credit cards.
Bankruptcy
The legal process helps you get out of debt if you cannot repay your creditors. There are pros and cons to bankruptcy as well as two different types.
Chapter 7 bankruptcy is when your assets are sold to pay off your creditors. This liquidation process includes jewelry, collectibles, and similar items. In most cases, you will still keep your home, car, and other essential property.
Chapter 13 bankruptcy is more structured to reorganize your finances. This helps to ensure your creditors will be paid with a proper repayment plan in action. Chances are you will be able to keep all of your assets and belongings.
Pros
- Provides debt relief and helps you with a fresh start. You will be discharged from most of your debts, which means no more payments on them.
- Creditors will be prohibited from contacting you or taking legal action. This will help provide a solid peace of mind.
- In some cases, you may be able to claim deductions for bankruptcy expenses.
Cons
- Will damage your credit score and stay on your report for up to ten years.
- Giving up assets to pay creditors may be difficult for some.
- Legal fees for bankruptcy can be expensive. Factor in legal costs when making a decision.
Bankruptcy is ultimately a personal decision to consider when you may be out of options. Always talk to a bankruptcy lawyer to get personalized advice.
Debt Relief Programs
Education on how to achieve debt relief is vital to succeed. You may be able to educate yourself through various posts and articles online, but an excellent place to start is the CuraDebt Debt Relief program.
A company like this may help you get out of debt faster than you think and can personalize a plan that fits you best. These dedicated debt specialists will help to resolve your debt and give you empowerment knowing you are in control financially.
Let them do the financial planning for you!
Credit Scores – Do They Matter?
The answer is simply, yes. Credit scores allow a lender to know your creditworthiness and how likely you are to repay the loan. Keep your credit score high by:
- Paying bills on time (vital to improving credit score)
- Keep your credit utilization low (percentage of your available credit)
- Don’t apply for too many new credit accounts at once (this can hurt your credit score)
- Dispute any errors on your credit report (take action immediately)
Another important factor lenders consider is the debt-to-income ratio (DTI). This is a measurement of how much of your monthly income goes towards debt payments. DTI can be calculated by dividing your total monthly debt payments by your gross monthly income.
For example, if your gross monthly income is $2,500 and your monthly debt payments are $1,500, then your DTI is 60%. This DTI number is not good and needs to be around 36% or less.
Credit Checks
Any time a lender or somebody checks your credit, it is called a pull. It is important to know the difference between the two types of credit pulls and how it affects your credit score.
A soft credit pull is initiated by you, a potential employer, or a landlord. They simply want to check to make sure you are in good standing with payment history. They are not lending you money which is why a soft pull will NOT affect your credit score.
Signing up for free credit report services like Credit Karma or AnnualCreditReport.com is also when a soft pull may occur. Soft inquiries will stay on your credit report for 12 months.
Contrarily, a hard credit pull is done by a lender when you apply for a credit card or loan. This type of credit pull will lower your credit score by a few points, but only temporarily. This number depends on your overall credit history and how many hard pulls you have listed.
A hard inquiry will stay on your credit report for 24 months.
Say “bye-bye” to Debt
Eliminating debt can be a surreal feeling, especially when you have been paying for years. The feeling of making that last car payment is so great because now you can save or spend that money elsewhere.
A good thought to consider is that it is not how much money you make, but how much you save.
Plenty of people make lots of money and spend it on items to make themselves look good. While there is nothing wrong with that, they tend to forget to put money in a savings account.
People making less than $50,000 annually have, on average, 2.6-month savings, whereas those making over $50,000 to $100,000 a year have 4-month savings. Emergency funds should cover at least 3 months’ worth of expenses.
Peace of Mind
Above all, having peace of mind is the most important factor in ALL of this. Say goodbye to worrying or having anxiety from debt-related issues. You will now be able to focus on what matters most in life.
Letting your finances run your life will be a thing of the past. Imagine easily affording your payments knowing your debt will be paid off faster than you originally thought.
Your mindset will change to being more positive and relaxed. Gaining peace of mind is your goal. Debt is a very real thing, but it is not forever.
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