5 Things Everybody in Debt Needs to Know

As of 2019, the average household debt in the United States was almost $10,000, totaling over one trillion dollars of debt in the entire country.

If you are one of the millions of people that feel like you are drowning in debt every month, here are 5 things you need to know.

5 Do’s and Don’ts When You’re in Debt

1. Don’t borrow from Peter to pay Paul. Many people get so far in debt that the only way to pay one bill is to take out another credit card or loan. They get the mentality that if they are already this far in debt, why not go a little further? The truth is that without a detailed plan to get out of debt, adding more to it is not going to help.

2. Don’t add unnecessary items to your debt. Using your credit cards to buy food or pay your electricity bill might be an urgent, understandable emergency. But using them to buy the shoes that you just had to have or pay the Netflix bill for the month are not good uses for a bill that is going to accrue interest.

3. Do be careful when accepting a zero-interest credit card. Zero interest credit cards sound like a dream come true at the time. If you use them right, you can transfer high-interest balances to the new card. But you’ll need to pay those balances off before the interest term ends and your rates skyrocket. In some cases, your new rates may be even higher than the one you were trying to get out of before.

If you do accept a zero-interest card and transfer that big ugly balance over to the new card, be sure you use those monthly payment-free bonuses wisely. You won’t have the old payment and you won’t have a big payment on your new card for a while, so that’s the time to invest that extra money into buckling down to pay off your debt.

4. Do work with a professional to reduce your debt. Going it alone is not the strategy that works for most people. You can become easily frustrated when it looks like your debt is not going anywhere. Professionals have tried and true strategies and debt consolidation tips that work.

5. Don’t fall for “checks in the mail” scams. Once you start actively researching ways to get out of debt, you’ll probably find multiple lending companies sending you “checks” in your mailbox. Some of them are real checks and it can be tempting to cash them and end your worries. Check the fine print, though. The strings attached to “free” money are usually not worth the cost.

You Can Get Out of Debt

You don’t have to reinvent the wheel to find your way out debt. Millions of others before you have done it through strategies that work. Find the one that works for you and you will be enjoying your hard-earned money yourself before you know it.

Debt Dodgers – 5 Strategies to Avoid the Debt Trap Forever

Dealing with debt is a total drag. If you’ve experienced the vicious cycle in the past, reap some positivity from it today by letting it serve as a reminder. Forgive yourself for any mistakes you may have made back then, or, for the stress and toll it had on your lifestyle and family. It’s much healthier to focus on making sure you never end up in the situation again. Start by following these five foolproof strategies for living your best life and steering clear of debt.

1. Run Away From Credit Card Offers and Payday Lenders

The bigger the financier, the less likely they are to have your best interests at heart. If you find yourself in an emergency financial situation you can’t cover with your savings, take out a low interest loan from a community-focused lender. Their smaller, more affordable loans and financial counseling services are designed to help the community, unlike the big banks who will always try to upsell and sneakily offer more credit than you can afford to pay back.

2. Say No To Pay Later Schemes

If it’s not a matter of life or death and you’re offered to pay in increments rather than upfront, do not accept. If you cannot afford something at the moment, do not buy it. While this point may seem obvious, many people carry debt because of this common mistake. Whether it’s for a new television, car or just a bicycle, a pay-later scheme leaves you indebted to someone and can be risky if your expenses or financial situation changes. It is much safer to buy upfront or not at all.

3. Prioritize Your Emergency Savings Account

While you can’t predict the future, you certainly can do your best to safeguard it. Create one designated bank account strictly for emergency use and make sure it’s not easily accessible – maybe use a different bank. Calculate the cost of six months worth of living expenses and put that amount in your emergency fund. It may mean depleting your checking account or a bit of aggressive saving for a while but if one day, you fall into financial trouble or lose a job this will be your safety net.

4. Generate Multiple Streams of Income

Job security can be a bit of a misnomer if you only have one job. By generating your income from a few different sources, you’ll gain the capacity to earn more money and have a plan B should anything affect your main income source. Setting up an online store or website is easy if you’re an artist, craftsperson, or have a supply of anything valuable. You can generate ad revenue if you write a blog or create content online or even make money by outsourcing your services on gig sites or selling second-hand items.

5. Renegotiate Your Ongoing Expenses

It may surprise you to know that most service fees we pay for on a daily basis are negotiable. This is especially true for all privatized billing services like your energy and gas, insurance, bank, phone and internet providers to name a few. Visit a rate comparison site and explore the competition to find the lowest rates. Unless you’re already on the most cost-effective plan, present these numbers to your provider and a lot of the time, you’ll find they actually can afford to charge you a lot less!

Keep these tips in mind and pay close attention to your spending habits. You’ll be able to save more money, enjoy more freedom as well as financial security.

The Top 3 Pros and Cons to Using a Credit Card to Pay Off Debt

Some people use their credit card balance to pay off debts. This has many pros and cons. Through Loanable financial solutions, you may avoid using credit card balance to pay off debts. But we are going to review some of the pros and cons of using the credit card. We will also review alternative methods to pay off debts. Debt management is good as it helps you clear existing loans and helps you to avoid taking more debts in future. Knowing the various options you have towards clearing loans and any other debts may help you to achieve financial freedom

Here are the top 3 pros to using a credit card to pay off debt:

  1. Improve credit rating

To qualify for loans and financial help from most lenders, your credit rating is considered. Using a credit card to shop regularly and ensuring that the credit card bill is paid on time will help you to increase your credit score.  Most organizations use the credit score to determine interest rate when you apply for a loan, rent deposit and generally your creditworthiness. Paying off debts with your credit card helps you get rid of bad debts, therefore, enhancing your creditworthiness.

  1. Avoid accrual of debt charges

If you use your credit card to pay off debts, you may avoid charges due to non-payment of the debt or late payment. With a credit card, you have up to forty-five days in some cases to repay the amount already spent. This makes it a good debt management tool.

  1. Savings

Every time you use your credit card you get rewards. Different companies have a form of reward to their loyal customers. If you pay debts using the credit card, you still get the rewards. These are forms of savings and if you use your credit card more, you also access more points and hence more rewards.

Cons of using a credit card to pay debts

  1. Destroy credit rating

Because of ease of spending, it may eventually destroy your credit rating when you fail to pay. You should use other methods to pay debts so as to avoid reducing your credit rating score. It is advisable to use alternative methods to pay debts to avoid compounding the debt problem.

  1. Interest

If not paid on time, you will be charged interest. If you are struggling to pay off debts, you may still find it hard to pay the credit card dues on time. This may end up increasing your debt in the long run.

  1. Increased debt

Since you already know you have a credit card that can help you clear monthly debt installments, you may not feel the need to look for additional sources of income. Due to ease of spending, a credit card may also get you into even more bigger debts. You should, therefore, avoid using it as much as possible. It’s best reserved for emergencies.

Before you decide to use a credit card to pay off debts, ensure that you have also reviewed other sources of finances. You may easily identify affordable loans with better repayment terms and conditions and avoid the risk of getting into more high-interest debts.

4 Tips to Working With a Collection Agency

Debt recovery is a potentially taxing, unnerving, and time-consuming undertaking hence the rising popularity of collection agency merchant accounts. Collection agencies hold clients financially responsible for outstanding bills. For better services, we recommend you secure engage a collection agency that acts as more of a partner than a contractor.

The importance of cultivating an excellent working relationship with your agency can’t be stressed enough. Work ethics dictate you hold regular meetings for status report updates to assess your account status.

This piece will explore on the various way to work with a collection agency.

1. Determine an agency’s legitimacy

Statistics reveal the existence of over 4,200 collection agencies in America alone! You’d expect a few unscrupulous agencies to account for a fair percentage of that figure.

Some collection agencies handle B2B collections, while others deal with consumer accounts. The more established collection firms often deal with both B2B and consumer accounts.

Ask for referrals from trusted business associates, your attorney, or accountant in your industry.

Another aspect to consider is licensed and bond status. In most states, regulations stipulate that collection agencies require to obtain either of bonded status or licensing and others both. Assuming you do business locally, hire a collection agency located in your State.

For cross-border business persons, find an agency that’s licensed in all states you conduct business.

2. Disclose information

The collection agency requires you to provide them with as much information as possible about a debtor. Full disclosure helps in raising the odds of obtaining the highest possible compensation.

The more debtor information you disclose, the more cash you stand to collect. Besides revealing your debtor’s name, you must furnish the debt collector with their telephone numbers and addresses.

Also share cell phone numbers and email addresses, physical address, spouse, neighbors, relatives, and friends.

Other information includes;

  • If the debtor has, in any way, responded to your collection inquiries
  • Nicknames, aliases, and maiden names of the debtor
  • Extensive details about the transaction or purchase, including the date and time- if need deemed necessary
  • Contracts signed and credit applications

3. Understand applicable regulations

The FDCPA (Fair Debt Collection Practices Act) guides the practices of collection agencies. As much as the debtor owes you, they remain protected from possible harassment. Agencies are known for employing aggressive tactics, pushing and bending laws to coerce people to meet their debt obligations. Understanding relevant laws will guide you during your collection exercises.

Refrain from hiring an agency renowned for using underhanded tactics.

4. Understand the cost of engaging a collection agency

Collection agencies recover your money at a price, meaning you must pay them a pre-agreed percentage of what’s recovered. In most cases, if your business receivables go past the 120-day mark, your chances of recovering your monies drop significantly.

Key takeaway

It’s vital that a collection agency doesn’t ruin the relationship with your customers by fulfilling their mandate as per the law. Hire a reputable agency to safeguard future business.  

Financial Steps To Take after Paying off Debt

You’ve dreamed of being debt-free and after persistence, sacrifice and delayed gratification; you’ve paid off that last credit card bill. Congratulations, but your financial journey is nowhere near over.

Becoming debt-free doesn’t mean you suddenly have all the financial answers. You have to guard against backsliding, and plot your new course among the many new options that come with more disposable cash. Here are a few steps from Cash 1 Loans to take after you pay off your debt.

  1. Be the Tortoise, Not the Hare.

While, the hare in one of Aesop’s Fables was one of the fastest animals around, he quickly lost steam and was defeated in a race with a slow-moving tortoise. When it comes to your money, it’s better to be slow and methodical than fast and impulsive. Rushed decisions are very often emotional decisions. Take a couple of months to get used to your financial situation and determine what you want to accomplish next. Then create a spending plan that will get you there.

  1. Commit to a New Major Goal.

One of the benefits of paying off debt is proving to yourself that you have the heart to achieve a big goal. Keep those motivational juices going by finding another mountain to conquer. When you finish, don’t stop there. Take another two to three years to aggressively save. You’ll be so pleased with the results.

  1. Reassess Your Budget.

You’ve had all your extra money going toward your debt payoff and it’s now time to redirect the money somewhere else. But that doesn’t mean you aren’t allowed to use any of the money for fun either.

If you’ve been working yourself to the bone and pinching pennies over the last several months or years take the time to figure out how you want to reallocate your income.

If you plan on putting a portion of that money towards things you consider fun like home improvement, clothing or a trip and decide how much that will be. While it’s absolutely okay to cut yourself some slack, if you don’t carefully plan you’ll end up spending all of your extra money on fun stuff rather than just the small portion you were planning.

  1. Fight the Urge to Chuck the Budget.

When every penny no longer needs to be accounted for, you may think you no longer need a spending plan. But if you don’t have guidelines, you can go back into the same cycle.

After paying off significant debt, one might easily have an extra $500 to $1,000 per month in disposable income. Without a plan, the extra money can simply “get lost” amid your normal spending money.

  1. Consider Priorities You Put Off.

If you’ve been paying off debt, chances are there are things you’ve been putting off. Whether it’s buying a long-term care policy, starting your child’s education fund or even taking that dream vacation, now you can put money aside for those things you neglected. Two areas to pay particular attention to are emergency savings and retirement.

That’s what Zina Kumok of Indianapolis did after taking three years to pay off $28,000 in student loans. “Since paying off my loans, we’ve been able to increase our retirement contributions to 10 percent, save $15,000 or six months’ worth of expenses and also save for a European vacation next year,” she says.

  1. Look into Alternative Investments.

Now that you have more money freed up each month you have the option of looking for ways to earn even more. One of these methods could be through alternative investments.

All of these ideas are not for everyone but if you’re interested here’s a list of things to consider:

  • Investing in Real Estate
  • Investing in Peer to Peer Lending
  • Learning How to Trade Stocks

Be sure to thoroughly research any new investment idea. Learn as much as you can before investing large amounts!

  1. Put More Towards Retirement.

When I was working on building up my finances to a level I considered stable, one thing I definitely slacked on was retirement savings. If you’re like me, now is a good time to increase your contributions.

Even increasing your retirement savings by 5 or 10% can go a long way. This is also one of our favorite strategies for reducing the taxes you have to pay before the end of the year.

  1. Start a Side Business.

When you’re saddled with debt, taking any type of risk with income can seem scary. Perhaps that debt has held you back from trying out a new side business idea you’ve been interested in? If so, now is a good time to get your feet wet and give your idea a fair try.

  1. Incorporate the Lessons Learned.

Don’t forget the difficult lessons your debt taught you. I have seen people pay off debt and then plow themselves back in because they have not addressed the root of the issue. If overspending got you in credit card debt before, you might want to stick with cash.

  1. Prepare for the Toll on Relationships.

You’ll realize such a significant accomplishment as paying off your debt is likely to affect those around you. For example, you and your friends may have grumbled together about your money woes or your inability to do certain things because of financial restraints.

Now that you’re debt free, you may have to find other topics of conversation and ways of connecting. On the flip side, some friends or family members may be more apt to ask for a handout. If you don’t want to fulfill such requests, plan in advance how to turn them down.

  1. Stay Goal Oriented.

It was easy to stay focused on paying off your debt (most of the time) because you had a strong goal. You knew exactly how much debt you had to pay off and could calculate how much time it would take based on your extra monthly cash flow.

That goal kept you motivated.

If you want to keep improving your personal finances, you need to stay goal oriented. While it’s perfectly fine to loosen the reigns a bit you’re going to need to set yourself strong goals to stay focused on the end game.

  1. Spend and Have A Blast.

Now, it’s not all about saving. I don’t use the word often, but after all your hard work paying off debt and saving so much; you deserve to spend a little!

This is one of the most difficult steps for anyone who has paid off large amounts of debt because it doesn’t come naturally. However, if you are actively saving 15% or more of your income and investing in your retirement accounts, you have an emergency fund, and you have money left over every month, you should be free to go on vacation or buy whatever you want as long as it’s not more than what you have.

Ultimately, paying off debt is just the first step to your journey of financial independence, but it’s the most important one because it sets the path for the rest of your journey to financial success. Just remember that life isn’t all about saving, saving and saving some more. Leave yourself a little room to enjoy life’s little extras too, especially because you spent so much time setting yourself up for success.

Debt is not a Death Sentence: Use These 4 Tried and Proven Strategies for Getting Back on Your Feet

Debt is that dreaded four-letter word that has the power to turn your life into a living nightmare. Sometimes your debt can be a consequence of overspending and lack of foresight on your part, but eventually even this will come back to haunt you and cause you countless sleepless nights. However, being in debt is not a death sentence. There are scores of people getting out of debt daily, and some in a short period of time. Follow these 4 proven strategies to get back on your feet and out of debt.

1. Work Out A Realistic Budget

Work out a budget in order to track what your income and expenses are. This will help you see what you have to work with and let you have a realistic viewpoint of the health of your finances. You will quickly know whether you have any money left over or whether you are dipping into the negative. The goal is to move away from the negative, which is your deficit, into the positive or surplus.

Make sure to pay off a lot more on your debt than what is required whenever you can. With your surplus, you can easily knock down a couple of thousands from your debt amount.

2. Reduce Your Expenses

The most obvious way for you to get out of debt is to reduce your spending. Do not succumb to unnecessary spending to try to get out of debt. This will drive you even deeper down the rabbit hole.

Do you spend $300 on weekly groceries and another $300 on eating out? Don’t do that — eat out less, and focus on buying store brands of your grocery staples. Try a more frugal way of living. What you save out of that initial $600 than can wipe out a huge chunk of your debt.

Another way to reduce your expenses is to reduce the number of things you just have lying around the house unused. Declutter your life and sell all those extra goodies just lying around gathering dust, and use that money to pay off part of your debt.

  1. Have an Emergency Funding Source
    In order to keep a level head during times of financial stress, it is wise to keep an emergency funding source ready in case things go south. Yes, this sounds counterintuitive and contrary to what you have to do to stay out of debt, but having a reliable place to go to in times of need will help you stay away from high-interest loans and more credit card debt.

    Acquiring a small personal loan to keep things afloat should not be stressful. In fact, it should be easy for you. You should apply from a place that is well known for fast approval, and where you don’t have to deal with unnecessary delays in receiving the money.

  2. Refinance Your Debt

Refinancing your debt is a method used to move your debt to a vehicle of lower interest rate. This is done by transferring your debt to a different lending company than the one currently handling it. You can also transfer credit card debt to a credit card with a lower interest rate or use a loan with a lower rate to pay off the credit card debt. The idea is to lower the overall interest rate you are paying on all your debt.

It is important to consider and especially read all the fine print associated with closing costs and interest rate rules before signing on your new loan. Do not agree on any type of refinancing until you feel adequately informed and understand what you are getting.

5 Options for Debt Relief

If you’re laden down by debt – whether this debt is from your student loans, credit cards or other personal loan – then you’ll benefit from this path to debt relief. Getting yourself out of the red isn’t simply a case of reducing your spending every month, given inflation and the sheer cost of even everyday things these days.

One of the avenues comes from BBB accredited debt relief program reviews, which provides confidence to the average consumer that this is a company that can help. You can have either a secured loan or an unsecured loan – there are options available to address either.

  1. Transferring Your Credit Card Balance

In response to the economic climate where debt is a growing issue, many credit card companies actively promote the possibility of balance transfers from your existing card to theirs – and this comes with an enticing 0% annual percentage rate for the first half-year – sometimes, up to the first two years!

A 0% APR means your monthly payments are only going towards the principle; you’re not on the hook for the interest on the balance for that period of time. A word of forewarning, though: remember that risk is directly proportional to creditworthiness, so high credit scores are generally a must to receive offers like this.

  1. Interest Rate Options

This is an expanded continuation of the above, as not everyone will have the FICO score necessary to receive a 0% APR offer. In fact, you can be proactive in this regard: give your current creditor a call and schedule an appointment – online, or in person – with an account manager. You may be able to obtain a lower interest rate.

The benefit of this is that more of your payment goes towards paying back the principal each month, instead of to settle the risk the creditor is undertaking as determined by your creditworthiness.

  1. Debt Consolidation

You might ask – why would anyone ever want to consolidate their loans? Well, for starters, if you have a lot of credit card debt, then you’re aware of how high the interest rates are on these when compared to what you can get with an average credit score on an unsecured loan. As such, there are quite a few companies out there willing to give you a personal loan at a lower rate; by consolidating all your other debt, you end up paying more money towards the principal with each payment.

The only debt you shouldn’t consolidate together are federal and private student loans – they often have widely-varying rates. Avoid crossing barriers; although of course, you can consolidate different federal loans with each other, and the same for different personal loans.

  1. Debt Forgiveness or Settlement

This option requires more research than the others, as the pickings are slim, so to speak.It’s the last step before a collection agency may step in, and accomplishes a similar function without as much of a hit to your credit history (or any at all, in some cases). Speak with your creditor about the possibility of paying a single payment that’s a sizable fraction of what you owe; they may forgive the remainder of the debt if you can do pay right away.

  1. Managing Your Debt Using an Assistance Program

Lastly – for this article, at least – debt relief in the form of credit counseling has been shown to work for quite a few people. How does it work? The agency takes on your principal, and works out a deal with your privately that lowers your monthly payments to something more manageable. Of course, you’re likely paying for their services, but this amount will be tacked on to the overall payment over the long term.

3 Primary Causes For Debt

For many people, the word “debt” sends a shiver down their spine. They either have unmanageable debt or have escaped a frightening situation where this was once true for them.

It’s not a word that is used lightly in a conversation. The reason debt triggers such an emotional charge is because we link our well-being and survival to money, and when we owe more money than we are bringing in, then we feel a sense of dread.

Options for Debt Relief

If you have debt, you have 3 main options:

  1. Self-help. Help yourself through learning money management techniques like budgeting. You can take classes in financial literacy to get better at managing your money.
  2. Ask for help. Work with a debt relief services, like debt settlement or debt consolidation. Only work with a reputable firm, so do your research before signing up for any program.
  3. File for bankruptcy. In an interview on the Wellness Hour Consumer Report, host Randy Alvarez interviewed Michael Doan from the Doan Law Firm about bankruptcy filings as a way to cope with unmanageable debt. Mr. Doan said that many people wait too long to file for bankruptcy, filing after they deplete assets that could have been protected in a bankruptcy filing.

Reasons for Debt

There are three primary reasons why people go into debt:

  • First, it’s because of poor money management.
  • Second, it’s because of inaccurate thinking about money.
  • Third, it’s because of unexpected financial problems.

Let’s take a closer look at these 3 categories of debt.

Poor Money Management

  1. Financial illiteracy.

Money can be said to be a game with rules. If you don’t know the rules, you are going to be on the losing end of the game. Managing money is not as simple as earning a living and paying bills.

Schools don’t teach skills like how to balance a paycheck, and few parents sit down with their kids and explain the value of saving and investments and how to avoid clever sales tactics. It’s important to get an education about how money works.

  1. Financial neglect.

Education about how to earn money, how to spend it, how to save it, and how to invest it, isn’t always enough.

You may, for example, know how to create a budget, but still not do it. Yet without this simple tool, you might be spending money unnecessarily on things you don’t need while not having enough money for some necessary expenses.

Usually, the problem is not a lack of skills but a psychological issue related to not wanting to take financial responsibility.

  1. No savings.

Many people don’t like to save because of inflation. Since the purchasing power of their money dwindles over time, they are losing money by parking it into a savings account. Although they earn interest from their savings account, it is less than the rising cost of living.

However, in an emergency, like the loss of a contract if they are self-employed or the loss of a job if they work for someone can create a crisis. With 3 to 6 months savings, they could manage the sudden loss of income and find new income opportunities.

  1. Underemployment.

After a job loss, a person may have to settle for a job where they are underemployed.

However, this situation may continue for a longer time before they anticipated. In the meanwhile, they may still be paying the same expenses that they were able to handle when they had better paying employment.

Inaccurate Thinking

Sometimes debt occurs because of inaccurate thinking about a life situation.

  1. Inaccurate thinking after a financial loss.

Sometimes after an unexpected financial downturn — like reduced hours offered by an employer or a decrease in sales — people don’t adjust their expenses.

They spend the same amount as they normally did and not make any adjustments to their old spending habits. As a result, they begin to rely more heavily on their credit cards to manage the discrepancy between income and expenses.

  1. Relying on an expected windfall.

Sometimes people don’t manage their money well because they are expecting an inheritance or some other type of future windfall to compensate for their current overspending.

When these don’t materialize as expected—for instance, their relative may have only pretended to be wealthy—they find themselves short of the money they need to pay back all their expenses.

  1. Addictions.

Sometimes the desire to consume is greater than the means to do so. Besides the high cost of sustaining a drug addiction, there are also other types of addiction like gambling. A person who has an addiction finds themselves unable to stop despite the obvious negative consequences of their behavior.

Unexpected Life Circumstances

Sometimes people can be doing everything right when it comes to managing their money, but experience circumstances that completely drain their assets.

  1. Divorce.

This can be devastating for one or both parties. Besides the psychological pain, there are numerous expenses and losses associated with getting a divorce.

  1. Medical expenses.

Just a few days in the hospital can put you in debt for tens of thousands of dollars if you don’t have coverage.

  1. Death in the family.

The death of a loved one can create a lot of sudden expenses. Money has to be managed. It doesn’t matter how much or little you have, it has to be managed to avoid debt.

The bottom line is that money has to be managed:  It doesn’t matter how much or little you have, it has to be managed to avoid debt.