The Sneaky Aspect of Debt

You begin your adulthood with high aspirations. You want a good job, a great car, and an even greater house. Somewhere along the line, the plan went awry. You now have high debt, a stretched budget, and you are not enjoying life at all. In fact, the stress and worry about all the debt is causing lack of sleep, irritability, less productivity at work, and discord in your relationships. No once cautioned you to beware of financial dead ends, but you are at one now, and the walls are closing in. The good news is there are solutions, and you can clear all your debt loans, with patience, commitment, and a good dose of self-discipline.

Good Debt and Bad Debt

Your first step is to decide which of your debts are good and bad. Good debt is that for which there is a valuable asset. A home mortgage is good debt, because you have an asset (the house) which continues to appreciate while you pay the debt off. Bad debt is debt that has been acquired by the purchase of goods and services which had “shelf lives,” in other words, they have been consumed or used and you are still paying for them. The amazing thing about credit card debt is that it gets high and you cannot even remember what you purchased. This debt usually carries high interest rates and never really gets eliminated because you keep charging. And you keep charging because now you don’t have enough cash to purchase the things you need and want. It’s a terrible cycle, and people go to their graves with huge amounts of debt still hanging out there. This is no way to live, and you need to take action now.

Where to Begin

You have some options depending upon your current situation. If your debt payments have all been made on time but you are stretched to your limit, your credit rating is probably still good. This will allow you to seek a consolidation loan of some type at a relatively decent interest rate. The idea of consolidation is to get one large loan, pay off all of the bad debt, and have just one monthly payment which is much lower than the combined payments on the paid off debt. The best rates will be given by credit unions or banks, if you are unable to access equity in a home or borrow from a 401 K. You have to cut up those credit cards, however, or the new loan is pointless.

If you have late or missed payments, your credit rating has already been damaged. If you are very late (60+ days), your rating is in the gutter, and there is nothing you can do about it now. You will not be able to re-finance your home, and banks will find you too risky for a consolidation loan. It is time to seek the services of professionals in consolidation and/or settlement. The goal here is let someone else negotiate with your creditors for lower interest rates, lower payments, and lower total debt amounts. You can attempt these negotiations yourself; however, unless you have the skills, stamina, and time, you will not be as successful. These professionals will analyze your total debt picture and plan an attack suited for your situation. Do your homework before you sign a contract, and be certain that you know the fees involved.

The Debt is Eliminated – Now What?

If you are smart, you will not repeat the performance. Only you know what spending habits or circumstances got you into the difficulty, so only you can develop the plan to avoid it again. Get some financial management counseling, and put together a long-range plan that will include regular savings and investment. Learn how to avoid the impulse spending and poor budgeting habits of the past. Plan that future with the great car, wonderful home, and money to enjoy your life.