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Your Debt Questions Answered
By Steve Diamond
There are many reasons why we get into debt. Sometimes it just creeps up on us and other times we just take on too much! One of the main reasons most people are in debt today is due to the rise in the housing market and the fact that it is so easy to obtain credit.
Take credit cards for instance. They lead you into a false sense of security whereby they offer you a 0% interest rate over a period of three, six and sometimes even twelve months, then when the 0% interest period is finished they hit you with the standard credit card rate, which can be anywhere between 10% and 25%.
Using your credit card and paying the minimum off every month can only spell disaster. Paying the minimum payment hardly ever decreases the amount you have to pay off the balance. This is due to the amount of interest charged to the card after the payment is made. Also if you keep on spending, you will soon find yourself with a huge bill, a huge minimum payment and a huge amount of interest every month.
The same applies to the department store card and gas company card. These cards work almost the same as a credit card but after the initial welcome period or special offer, the interest rockets and you find yourself with an unmanageable bill.
When you eventually realize that your debt is getting away from you, and managing your bills is not as easy as it used to be you turn to the bank for a loan, or get another credit card to pay off the old card. At this point, we see who is on a downward spiral and who is not. The sensible ones among us will consolidate all debt and take losing control of debt a lesson learned. The not so sensible ones will consolidate, and then revert back to using their cards once more, thus doubling their current debt to out of control proportions.
Here are some questions and answers about debt:
Q. Do certain bills have priority over others?
A. Try paying off the credit cards with the highest
rates of interest first? Also if you are in arrears with your mortgage or utility companies, prioritize these first
Q. I have run up a large amount of debt, what next?
A. Be aware of your problem. Seek advice from a friend, family member or a professional. Your debt will not just disappear.
Q. Will a loan help me get out of debt?
A. As mentioned before. A loan will consolidate all your debt problems to one manageable amount. However you must have the will power to want to stay out of debt. This means get out and stay out! Don't be tempted to fall back into the debt you have just consolidated.
Q. Would it be better to save up and pay my debt or pay my debt as it comes?
A. Pay your debts as they come. There are a couple of reasons for this. The first is once you have paid your monthly payment, you can't spend it. Second, the interest rate on your cards will be reduced, the more you pay and the more frequently you pay it the less the interest will be next month.
Q. Will the lender take serious action against me for missing payments?
A. Most lenders are sympathetic to you when it comes to managing your debt, but you must talk to them. Don't wait for them to call. If you keep the lender informed of the problems you are having, a solution can be worked out. County court judgements, Bailiffs and other credit return agencies cost money. Don't be scared of your creditors, communicate with them.
Q. Should I use a credit counseling agency?
A. There are certain debt management agencies out there for you to use. However only use these companies if you feel that you cannot manage your debt alone. Some agencies will negotiate with your creditors and arrange for you to pay an affordable amount over a longer period. This can be extremely helpful if you feel your debts are out of control. We recommend Delray Credit Counseling
Steve Diamond is an authority on money management, debt reduction, and the laws of true abundance. He hosts the web site Necessary Virtues Personal Finance at finance.necessaryvirtues.com/
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