The Finance Blogger


Debts – What to do About Debt

What to do About DebtMany consumers are struggling with debt. Consumers are paying the mortgage payment, and taxes, or rent, a car loan and probably some credit card debt. The monthly payments compared to their income is often above 35%. This is the number the banks use to determine whether they can add further debt to your monthly payments and still be risk-free or relatively risk-free. What to do about the money you owe when it gets difficult to deal with? When you get about 35% in terms of debt load, it starts to impact the food that you can put on the table, the clothing that you can buy your kids and many other entertainment style expenses. Consumers finally need to cut back.

What to do About Debt

They have choices regarding what to do. These choices are sometimes difficult. However there are financial solutions which can lead to improve the loan situation and more money to enjoy life with. We will discuss some of these in the following paragraphs.

They can continue as is and just keep struggling along paying more loan payment than they can afford and also cutting back on food, clothing and utilities. Ultimately they will default on their debt.

They can default on their debt. When you default on your debt, there is a severe hit to your credit rating. You end up with a bad credit rating and in most cases cannot borrow money for at least seven years. This means no car loans, credit cards, no other personal debt.

They can negotiate with lenders. This is probably one of the best solutions and that is to talk to your lenders and negotiate a solution that is a win-win for both of you. The lender wants to make sure that he gets paid, you need some relief from your  payments and as long as you’re both willing to work towards a solution you can get your loan payments under control.

They can refinance their debt. Part of the discussion with your lender is that it could lead to a solution of refinancing all of your loans. This could lead to a lower interest rate, and lower monthly payments which allows you to get control of your loans and also continue to put food on the table and clothes for your kids. Always consider refinancing your debt particularly if you’re paying high interest rates on debt such as credit card debt.

Pay the Highest Interest Rate Loan First

Then focus on repaying the highest interest rate debt first. You will reduce your interest cost significantly when this debt is paid and also a significant drop in your monthly payments if the highest interest debt is paid for first.

Consumers can do a combination of all of the above. Except default on the debt which would really impact their credit rating! Taking positive steps towards managing your debt and demonstrating this to lenders will go a long ways to managing your credit rating. Keep it at a level that allows you to borrow consolidation loans at reasonable interest rates. Deal with the your loan situation quickly. Do not let it get out of hand otherwise consumers will be faced with a bad credit rating and high interest-rate loans if you can get one.

For more posts about what to do about debt and what to do about it, click here.

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