Wednesday, April 10, 2013

Getting Out Of Debt - My Personal Finance Journey

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Click here?to enter my free $50.53 giveaway for a chance to win 5% of My Personal Finance Journey blog income and give another 5% to a charity of your choosing! Deadline to enter is April 30th, 2013. The following is a guest post by?Jon Emge,?a Senior Advisor and Content Manager at?www.Lifequotes4u.co.uk.??Jon is originally from America, but moved to Liverpool because of his love for the Beatles.?He is a published author and has assisted and advised clients on personal finance. In his spare time, he enjoys listening to music, going to the odd festival, and practicing his poetry skills. Enjoy!?

When people are struggling with their debts, they can get bombarded with different solutions from different people and companies all with the same goal in mind, paying off the accounts and getting out of debt.? But, choosing the best option is an individual thing, and what works for one person may not work for another.

While there are numerous ways to pay off your debts (and not pay them off such as in bankruptcy), two of the most popular ways of dealing with debt and getting out of debt are debt consolidation and debt management.

Debt consolidation is really not getting out of debt, just transforming the debt from one form to another.

In essence, debt consolidation is taking out a new loan to pay off the other loan(s) or credit cards you may have balances on.? You are still in debt, and still to the same level or amount, but by just having one (1) monthly payment for many people, it is easier to manage; and in most instances, that monthly payment is less then the sum of all the accounts included in the consolidation loan.?

The reason why the monthly payment is less can be due to a lower interest rate, as credit cards have a high rate of interest, and also due to the term or time period of the payments.? The longer the repayment term, such as 48 months or 60 months, the lower the monthly payment.

What are the downsides or negatives of a consolidation loan??

It may be difficult to qualify for the consolidation loan.? If you have a lot of debt, your credit score may not be in the highest range which means you may not be granted the consolidation loan.

You are still in debt; you have just transformed the debt from many accounts to one single account.

Unless you have stemmed the tide or reason why you have the credit card debt or accounts in the first place, just consolidating them doesn?t change the fact you could end up using the cards or credit lines again and finding yourself in more of a financial pickle barrel.

If you happen to consolidate your debts with a home equity or HELOC loan or some other form of secured loan, then you enter into a different realm of debt.? You may have consolidated your unsecured loans and unsecured credit cards, but they are now secured debt, secured by your home.? Should you struggle to meet these repayments, your property and home could be at risk.

So what about debt management??

There are many forms of debt management, some you can do on your own or DIY (do it yourself), and some with the help of professional advisors and outside organizations.

Which type of debt management is best for you can depend on the level of your debt and if you are past due or in arrears with the accounts.?If you are in arrears and seriously struggling, then seeking professional help may be the best course of action. The other end of that situation is you can meet the monthly repayments, but want to be done with the debt(s), just wanting out of debt.

The first step is to stop debting!? Stop using the credit cards or lines of credit.

Review or set-up a new household spending plan and see what money you have each month to work with that you can use to pay towards the debts/accounts.? Then, obviously paying that amount to the accounts choosing an account to concentrate on to pay it off at a quicker rate then just paying the minimum monthly payment.

Think of your debts as a snow covered hill, and the money you pay as a snowball rolling down that hill.?You pay a set amount each month towards the debts, then once one account is paid in full, you continue to pay that set amount using the extra form the paid off account towards another account.? Then as that account is paid off, you continue paying that set amount towards the remaining debts.

Just like a snowball rolling down a hill that picks up speed and more snow, so well that set monthly payment and the accounts as they get paid in full.

So which account should you concentrate on the pay off first?

There are a variety of thoughts on this.? One being to choose the account with the highest interest rate, or to choose the account with the lowest rate as more of your extra payment will go to the principal balance.

My advice has been just choose one.? It may even be the account with the lowest balance as then you can achieve some level of success early on which can lift your spirits and drive you onward.


How about you all? What strategies have you used to pay off debt? Did you try debt consolidation or debt management programs, or did you simply bite the bullet and buckle down to pay off the debt?

Share your experiences by commenting below!

Jacob's Thoughts - Listed below are my random thoughts as I was reading this article.

  • In my experience, I have found that people looking to more aggressively pay off their debt often view debt management or debt consolidation programs as some "magic" cure or solution that will make it completely easier to get out of debt.?
  • The truth is that if you can fix your spending behavior and can have some success getting your interest rates reduced, you can accomplish many of the things that these programs offer without the cost.
  • However, these solutions are always good to think about as a fall-back.
***Photo courtesy of?http://upload.wikimedia.org/wikipedia/commons/1/1e/Women_in_Economic_Decision-making_Christine_Lagarde_(8414041294).jpg

Source: http://www.mypersonalfinancejourney.com/2013/04/debt-consolidation-vs-debt-management.html

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