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The Personal Checkup: How to Assess Your Debt and Understand When You’re in Trouble

Posted By:  |  January 14, 2014  |  0 Comment(s)

personal debt checkup
Consumers who have had to turn to debt relief options like debt consolidation, debt settlement, or bankruptcy in the past have likely learned the significance and importance of paying close attention to debts. Often, simply monitoring your own behavior and spending patterns, especially when it comes to credit card debt, can be the saving grace to avoid getting yourself into serious financial trouble.

But often many consumers find themselves, many times unknowingly, falling into an irresponsible or even dangerous financial pattern. So how can you help yourself avoid debt trouble? Here’s how to perform a checkup on your debt and diagnose serious issues.

Have You Developed the Minimum Payment Pattern?

Although many consumers seem to be under the assumption that simply paying their minimum payment every month on their debts is sufficient, the reality is that this method can be extremely dangerous. It is important to pay more than just the minimum payment so that a portion of that payment will go towards the principal owing, not just the interest.

According to Carol Friedhoff, a financial planner in Ohio, “If someone is only paying the interest and the debt keeps increasing because he’s not paying down any of the principal, it just snowballs. At some point, you cannot even afford to pay the interest.”

If you only pay the minimum payment on your debt every month, your insurance will continue to accrue until it reaches unmanageable levels. Get ahead of the problem by paying down as much as you can every month.

If You Can’t Stop Using Your Credit, You’re a Credit Addict

Credit addiction is real, and many consumers get themselves into debt problems and in search of debt relief because of it. Buying into the pretense that you can afford it (simply because you can put it on credit) often has the power to fuel an unhealthy level of consumerism. This can easily get out of hand if you max out a credit card in exchange for a new wardrobe. Red flags for a credit addiction include using your credit card as extra income or extra financial freedom, paying for items with credit that you used to pay with cash, and constantly battling the maximum limit on your credit card.

To end the habit, start paying with cash or a prepaid card. If you do this, when you’re out of cash you’ve got no other options for spending. Canceling your cards may not be a good option as it may affect your credit score. However, if you just can’t kick the habit and you’re still overusing your credit cards, then it may be worth it to take a small hit to your credit score in place of a bunch of extra debt.

Be Honest with Yourself and Your Debt

Often, when consumers develop reliance on and addiction to their credit, they really don’t want to see the truth in it, and will avoid even looking at their statements. But reviewing credit statements is critically important, especially when it comes to being honest with yourself about how much you owe so that you can avoid delinquent payments that will inevitably decrease your credit score.

Assessing your debt, such as credit card debt and student loans, is an important factor in remaining financially responsible and out of financial hot water. Interest rates on loans are important to note, and it’s important to develop an understanding of how long it will take you to pay off a certain loan at a particular rate. This all comes down to being honest, and setting a plan of action.

Being financially responsible and taking power of your financial standing before it gets into the dangerous zone is important, and this kind of responsible debt management is much more appealing than the alternatives of debt settlement or bankruptcy. If you find that your credit score has suffered, you only make the minimum payments, or you constantly use your credit for everything, you may be doing serious harm to your finances and your future.

We don’t recommend outside debt relief as your first option, but if you’ve tried everything you can think of, and need some extra help, we can help you find the best debt relief company to work with.

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  • How important is it to you for a debt consolidation company to offer financial education resources?
  • Takes your existing debt and try to settle with your creditors for a lower amount. If you pay off the settled amount, your debt will be considered paid in full.
  • Negotiates with your creditors on your behalf.
  • Fee based on a percentage of your total starting debt or a percentage of the debt they save you.
  • Most settlement companies have you create a separate "escrow" account where you will make monthly contributions over a certain amount of time to contribute to your settlement. Once there is a substantial amount of funds to show your creditors, the settlement company will try to negotiate a lower amount of debt.
  • Combines all your debts and creditors into one monthly payment.
  • Allows you to pay one monthly payment to the consolidation company, instead of multiple payments to different creditors.
  • You no longer owe your original creditors; instead you pay one monthly payment to your consolidation company.
  • Consolidation companies can help negotiate lower interest rates on your debts and help lower your total debt payment in the long run. A lower interest rate will lower the amount you owe in the end.
  • Allows you to consolidate all your different debts into one personal loan that can be paid off over time.
  • Can offer borrowers a lower interest rate with a longer payback term (compared to high-interest credit cards or medical bills). This will lower the amount of money required to pay off the loan over time.
  • Personal loan debt consolidation can be an effective way to raise your credit score quickly (within 3-6 months).
  • Borrowers can receive funds from their loan within only a few days.

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