Saturday, May 26, 2007

Help I'm Up to my Ears in Debt !

You have too much debt if:

  • You always have problems paying off your credit card
  • You are late paying off loans
  • You regularly use your line of credit to "finance" basic expenses

You have already taken the first step, recognizing that you have too much debt.

When in doubt, make a budget ( the steps are outlined in Aprils posts) to determing how serious or minor your situation is. For minor problems, your bank advisor can help. For slightly more serious problems, the advisor may recommend stronger measures such as rescheduling payments or consolidating debt.

  • Rescheduling Payments: rescheduling payments allows you to put off a payment until the end of a loan. However, with this comes the penalty of accrued interest and the principal taking longer to pay as it drops.
  • Consolidating debts:Consolidating debts involves a financial institution combining some or all of your loans into one. This allows you to make one payment instead of several. Financial institutions that do assume the risk of consolidating debt are justified in giving a higher interest rate. Moreover, the advisor must be convinced that the debt-cycle is done.

If the problem is extremely serious, you must be completely honest with your advisor, it's in your and their best interest to be honest so that they can help you. Corrective measures may be suggested.

  • Corrective Measures: If your institution agrees to help you, it may demand radical action such as cutting up credit cards and cancelling all lines of credit, The institution may ask a financially secure relative or friend to co-sign for you.

The last resort should be bankruptcy but this is not recommended as it will severly lower your credit rating and make it difficult for banks to loan money for 5 to 7 years.


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