Other financial factors leading to stress and anxiety are personal loan debts, medical debts, retirement, investments in the stock market, tax, credit score, and identity theft.
#How to get out of debt and financial stress
Other financial factors leading to stress and anxiety are personal loan debts, medical debts, retirement, investments in the stock market, tax, credit score, and identity theft.
Are you having credit card debt?
If yes, then no matter what, it’s gonna be difficult to pay off! One of the prominent reasons being the incessantly high Annual Percentage Rates (APRs) of credit cards. As you know, credit cards are usually unsecured debts as you don’t need to provide any collateral. And that’s why the credit card companies levy a high-interest rate to compensate for that risk!
Eventually, you can see a substantial part of your paycheck is deducted every month to pay off your credit card debt. And you might be waiting for the time when you will receive your next paycheck. In short, you might be living paycheck to paycheck!
On top of that, the effects of the recession can add to your problem! And thereby it can be more cumbersome to pay off your credit card debt.
Yes, you heard it right!
A 2019 Bloomberg report says that there is a probability of 26% that recession will hit our country within one year!
Whereas, a 2019 Bankrate survey has found that 2 out of 5 people in our country are not ready for the recession!
So, if you are one of them, you need to pay off your credit card debt asap. And it can be one of the baby steps to prepare for any economic downturn!
Exhausted with the high APRs of your credit cards?
Well, in that case, you can opt for transferring your outstanding balance amounts to a new credit card. It’s always advisable to opt for a balance transfer card which has a comparatively lower interest rate, preferably 0%.
But always keep in mind, most of the balance transfer cards come with 0% balance transfer fee for an introductory period.
On the other hand, many balance transfer cards charge about 3% to 5% of the amount transferred as the balance transfer fee right from day one!
So, to avoid mistakes while opting for a balance transfer card, you should always read the terms and conditions carefully!
You can save a substantial amount of money on interest payments. Besides, you don’t need to bear the hassle of multiple loans! Thereby, it helps you to pay off your credit card debt with ease!
You can take out a personal loan to consolidate your multiple credit card debts into a single one. But make sure that the interest rate is lower than your existing debts.
Let’s say, you have two credit cards with outstanding balance amounts of $3,000 and $2,500. And both the credit cards have the same APR of 22%.
If you take out a consolidation loan of $5,500 with an 18% APR, you can pay off both the credit cards.
Besides, your repayment plan becomes simple as you need to make a single payment every month to pay off your debts. And the biggest advantage is, you have to pay a lower interest!
Well, you might be stressed already being up to the neck with your multiple credit card debts. So, what if a company takes away your burden by consolidating credit card debts? And that too at reduced interest rates!
Yes, you heard it right! It might seem impossible to you! But actually, it’s possible! For that, you just have to approach a genuine debt consolidation company.
At first, they will assess your financial situation. Then they will try to negotiate with your creditors on your behalf to reduce the high APRs of your debts.
Once your creditors agree, the consolidation company will chalk out a single monthly payment plan for you, based on your debt amount and financial situation!
So, you need to make a single payment to the consolidation company every month for paying off your credit card debts. The consolidation company, in turn, will distribute the amount among your creditors.
And guess what?
You won’t have any chance to forget the different due dates of your multiple credit card bills. Thereby you don’t have to shell out more to pay late fees and all if you miss the payment deadline!
As you can see, by opting for any one of the ways I suggested, you can pay off your credit card debt faster and easier. Besides, you can save money too!
You can stash this money in your emergency fund. So, if there is an economic downturn, you can use that money during any exigency!
So, what are you thinking? Learn how to tackle credit card debt and get rid of your credit card debt asap!
The two most feasible options for people struggling to pay off debts are debt counseling and debt consolidation. But most people feel overwhelmed when they need to choose between these two options. It is worth mentioning that each method has its advantages and disadvantages. So before you select a suitable debt relief program, it is advisable to analyze your financial situation as well as check the two options properly. Therefore, let us discuss these two options in detail to know which one will be favorable for your financial situation.
Credit counseling is a process where a credit counselor educates the debtor about various debt relief options, money management techniques, and budgeting. This process also provides guidance to debtors to eliminate debt.
The credit counseling agency assists the indebted people to get out of debt. The firm guides the debtor to manage the financial situation effectively.
A certified credit counselor guides the debt-stricken consumers to get out of debt.
When you opt for credit counseling, the credit counselor will formulate a budget plan after reviewing your financial situation so that you can manage your finances. He will design a repayment plan to make the owed amount affordable to pay off.
Your credit counseling session will not bring down your credit score as the effect of this program will be negligible on your credit score. The credit counselors prevent consumers from applying for new credit cards and incur fresh debt. They also prevent consumers from using a credit card in the wrong way, which can hurt the FICO score in the future.
Debt consolidation is a process of merging your multiple debts with a consolidation loan at a favorable interest rate. You can prolong your repayment plan, which will help to lower your monthly payment.
You can take out an unsecured consolidation loan from a bank to combine your debts. If your credit score is low, then you might not be able to get the loan on the affordable interest rate.
Try to opt for a secured debt consolidation loan if you are looking for low-interest loans. You can take out a loan against a security deposit on favorable terms. But, keep in mind that, if you default on your payment, then you might lose possession over your assets.
You can even hire services of a debt consolidation company if you are unable to manage your debts. This company can help you to get a consolidation loan at an affordable interest rate. You need to find a reputable debt consolidation company with Better Business Bureau accreditation.
There is yet another way to consolidate your debts, and that is by enrolling in a debt consolidation program. Here the debt counselor associated with the company will negotiate with the creditors to lower the interest rate on the principal balance. He might instruct you to skip payments so that the creditors agree to lower the repayment plan. When you skip payments, your credit score might drop initially. But once you start making payments, it will eventually increase.
If you can’t manage your multiple debts due to lack of income and the debt collectors are giving you harassing calls throughout the day, you can enroll yourself in a debt settlement plan and repay the reduced balance with ease. While there are professional companies that you can resort to, you can also take certain steps on your own. By settling your debts yourself, you can save your dollars on the unnecessary fees charged by the debt settlement attorney.
Therefore, analyze your financial situation before selecting a debt relief plan as it will help you attain financial liberation. Make sure you exercise financial discipline when you take out a debt consolidation loan otherwise you might get further into debt. If you are looking for a fast debt relief solution, then credit counseling will not be a good option for you.
If you are struggling to repay your credit card bills, medical bills, or monthly bills, then you should apply the right debt relief strategy. Ignoring debt can create more financial trouble in the future.
You can seek many debt solutions to get out of unsecured debts. But, when you are struggling with multiple debts or bills, you can consider debt consolidation process.
In this process, you can either combine all your outstanding balance under a single card or obtain a loan at a lower rate of interest to pay off all your unsecured debts. You can also enroll with a debt consolidation company to consolidate your debt. Once you enroll in the program, the debt counselor will negotiate with your creditors to lower the interest rate on your debts. They will club all your outstanding debt obligations into a single low monthly payment plan. You just need to make one single monthly payment for a certain time to become debt free.
Some advantages of debt consolidation process are as follows:
If you opt for debt consolidation process, you would not have to bother about making multiple monthly payments to your creditors. Just by making a single payment every month, you can pay off all your debts after a certain time. You do not have to pay any extra fees. Only you will have to pay the consolidation services fees if you enroll with a debt relief company to opt for the consolidation service.
You can reduce the interest rate on your debts through debt consolidation. By putting all debts under one card, you will be able to get a lower rate of interest.
In case you are taking out a consolidation loan to pay off your credit card debts, then you will surely get the loan at a lower interest rate.
If you are getting help from a debt consolidation company, the company will negotiate lower rates of interest with your creditors. Thus, you need to pay a much smaller amount than what you were supposed to pay.
When you consolidate your debts, you just need to pay only a single creditor.
If you take out a debt consolidation loan, you will have to pay only the bank or the lender who has provided you that loan. Thus, you do not have to take the trouble of paying multiple creditors.
If you get help from a debt consolidation company, then they will assess your financial situation and decide on a single monthly payment. You need to pay this amount to the company and they further distribute this money among your creditors. Thus, you do not have to pay multiple creditors.
If you consider a debt consolidation program, the debt counselor will negotiate with your creditors to lower down the rate of interest on the debts that you owe. This, in turn, lowers down your single monthly payment amount. It is easy for you to pay a lower single monthly payment plan.
When you have too many credit card bills to pay, you will get several credit card bills in the mail. This can turn into a very stressful experience for you. When you consolidate your credit card debts, you will get only a single credit card statement. Thus, you can feel relaxed, which is very important for you to plan your finances better and live a good life.
Ignoring debt can create more trouble. You will start getting debt collection calls. If you don’t respond, then the creditors or debt collectors can sue you for the due payments. You may have to file bankruptcy to pay off the debt collectors. In bankruptcy, you may lose your assets. So, considering debt consolidation can help you to avoid bankruptcy.
Debt consolidation program does not hurt your credit score. Since you are paying off all the debts, it will not hurt your credit score. Rather, if you make regular monthly payments, your credit score gets a boost.
Nothing is flawless, debt consolidation has some flaws as well.
Here you go:
Lastly, you shouldn’t miss the debt payments for your new consolidation loan. So, make sure you follow a budget to make monthly debt payments on time.
If you decide to enroll in a debt consolidation program, then make sure the company is good. Check the rating with BBB before signing the agreement. A good debt consolidation company provides free debt counseling. So, you can be benefited by the debt counseling session. The counselor will help you to learn better money management and budgeting skills.
The simple answer would be a big “NO”
But there are certain aspects you may need to know first.
Most of your credit card debts and loans are directly reported to the 3 major credit bureaus every month. Each of your credit account statuses are regularly added on to your credit report showing whether you are late with your payments or whether the account is paid or closed.
When you settle your debts, the creditor would update your credit report with the status of “Settled” or “Paid as Settled.” The former status is naturally better than the later one, but any other payment status on the accounts except “Paid as agreed” or “Paid in full” may harm your credit score.
In debt settlement, you aren’t paying your dues full as you have agreed to the creditor. So, debt settlement will definitely have a negative impact on your credit score. Your credit score is dependent on a few factors, so the exact impact on your score may vary considering the other information on your credit report. However, it’s quite sure that debt settlement may have a significant effect on your credit score.
But is there any way you may settle your debts without hurting your credit score? Of Course… there are some options which may indirectly help you to settle your debts and get out of the situation. Let’s have a look at them closely.
One thing is sure, you need to create a fund or a reserve to pay off your debt. When you have saved enough money to pay off your debts, you may try to negotiate with the creditor for lowering the debt amount.
If you have multiple credit cards, payday loans, medical bills, and other unsecured debts, then you should focus on settling one debt at a time. Use one of the following methods:
If you want, you may negotiate with the creditor at any point in time.
To settle your debts, you may need to live within your means. Basically, you must free up as much money as you could for contributing toward your debts. Take a deep breath and create a budget:
Apart from lowering your expenses, you should also increase your income. Find a part-time job or try freelance work online. Don’t miss out any opportunity to explore new side hustles that may increase your income and help you to settle your debt on your own.
The money from side hustle may add up funds quickly. For example, you might get a job for $30 an hour. If you work 30 hours a week, you can earn an extra $900 before taxes. Over a period of 1 year, you will have gathered about $43,200.
You can earn money by selling unused things that you own. In fact, you might be able to sell things that got you into debt. Search your home for such things and locate anything that you can find useless. Sell it on eBay or in a yard sale. Engage all the money to pay off your unsecured debts.
Once you have gathered enough money to pay off your debts, you might want to negotiate your interest rate with your creditor. You can’t reduce the principal amount at all, it’s the interest which can be settled. Although you aren’t entitled to a lower rate, there’s no harm to ask.
Call your creditor, introduce yourself, and tell them how long you have been a customer. Ask the creditor if he can offer you a lower interest rate, so that you can repay your debts asap. You can also negotiate to settle the debts by paying less than what you owe. But you need to convince them to report your account as “Paid as agreed”.
As you pay off your credit cards, you might think of closing them so that you will never be tempted to incur huge balances on them again.
However, closing too many credit cards within a little time gap can create a red flag on your credit card report.
A better option would be waiting for a few months before closing each card. For example,6 months or so. Closing several credit cards, especially the older cards, in a short period of time, can give creditors the indication that you are having a financial hardship and can’t afford to maintain multiple credit cards. Apart from that, closing old cards also remove a good credit history from your credit report.
Closing one card and waiting a few months before you close another is usually a better strategy to protect your credit score.
You must remember that the prime target of debt settlement is to wipe out some of your debts which you can’t afford to pay in full. That means you need to sacrifice your credit score for the time being, especially if you’re not going to apply for a big loan right now.
Once you’ve settled the balances, you must focus on rebuilding your credit score again. Since credit is depending on your borrowing, you’ll have to use credit cards responsibly for incurring more credit balances and take out loans to rebuild your credit. Paying your monthly payments is another important thing to remember. You’ll should become an ideal borrower by making on-time payments for loans and pay your credit card bills within every billing cycle. This way you may achieve a good credit score, and can avoid incurring more debts.
Are you living paycheck to paycheck? If yes, then you are already in a financial crisis. Living paycheck to paycheck reflects that you are not able to manage your monthly financial obligations.
However, don’t be scared. You just need to break the cycle of living paycheck to paycheck.
There are more than one ways to get rid of the distressed finances every month.
The person who is living paycheck to paycheck is either spendthrift or a low earner.
So, to break the cycle, you have to learn to live on less and increase your income simultaneously.
Here’s how you can do it
To stop living paycheck to paycheck, you need to start following a budget as soon as possible. It will help you to keep a close watch on your monthly income and your expenses. Most people in the US hate to follow a budget as this puts a restraint on their spending ability. But most of them are not aware of the fact that budgeting is the secret to financial freedom.
Once you create a budget system according to your financial ability, you can manage emergencies, save money for the future, and make some additional expenses. A budget also teaches how to overcome the bad financial phase as well. Once you start following a suitable budget, you’ll be able to know the amount you spend and the amount you save. Thus, you can save more after meeting your daily necessities.
Budgeting is not so scary as many people think. Many budgeting tools and apps are available online. If budgeting sounds dull, then install the free app on your smartphone and start using it. Soon you can see the positive result in your personal financial health.
By restricting the usage of your multiple credit cards, you can easily restrict yourself from incurring further debt. The more you buy things with credit, the more you’ll dig yourself deeper into the credit card bill. Keep your card at home so that you don’t get the temptation of using it. Instead of credit, use cash so that you can stop shopping as soon as your cash is exhausted.
Also, pay the credit card bills in full and within time. Try not to incur credit card debt. Otherwise, you will not be able to save money on your paycheck.
To save money, you need to cut down unnecessary expenses. To stop living paycheck to paycheck, you need to save at least 10% of what you make each month. To do so, you have to cut down unnecessary expenses.
Go to a small store rather than a large one to buy your clothes. Instead of following the latest trend, make your own fashion statement. Buy jeans and T-shirts of bold color and use them for casual wear. You can also buy a black evening gown as this color never goes out of fashion. Keep a close look at the offers and discounts at your nearest stores and grab the opportunity of buying clothes at a cheaper cost.
Curtail your entertainment expenses like the cable bill, movies, and expensive magazines, and save a royal share of your hard earned money. Try to be a little creative and find entertainment in flying kites, playing soccer, and going for an evening walk. You can also spend time with your friends and family at home along with some delicious snacks.
Try to change your food habits and save some amount of food. It is advisable to carry lunch at work instead of having food from outside. A sandwich can cost you around $20. So, if you carry lunch from your house, you can save $20 a day, which means $600 a month. Shop your groceries from small stores rather than large ones and keep an eye on offers and discounts. Also, gather discounts coupons and carry them along while going for shopping.
Most of the people love to eat out in fancy restaurants. But, too much eating out can be unhealthy for your wallet. A lavish dinner/lunch at an expensive restaurant can cost you nearly $2,000 a year. Instead, you can enjoy the homemade meal to save money. If you can restrain yourself from eating out at an expensive restaurant, you can save thousands of dollars a year.
If you’re working hard and performing well in your workplace, then this is the right time to ask for a raise. Approach your employer in a right way to get paid according to your capability. You can also consider a side hustle to boost your income. Go online to get ample of ideas.
You can also boost your income by doing a side hustle. It will help you to earn more.
Save, save, and save. No matter what amount, but consistency is required. Try to start small. It will help you to balance other mandatory expenses. With time you will be able to save enough money.
Following a budget and saving money require some lifestyle changes. So, you need to keep patience and stay motivated while making changes in life. It is better for you to set a goal and try to achieve that. If you set a goal, you will always have that working in your mind, and you will constantly strive to achieve that. Once you are able to achieve the goal, you can reward yourself.
Lastly, there is no such rule or “Mantra” for breaking the paycheck-to-paycheck cycle. Living on less, changing lifestyle, and following a budget makes a difference over time. If you lose your patience while breaking the paycheck to paycheck cycle, talk to a financial advisor for support and motivation. Remember, with determination, you can start saving and the financial difficulties that you always had at the end of the month will go away.