One of the biggest causes of credit defaults has been attributed to poor money management. This is often because of poor planning alongside other factors. But first, it is important to know that the best way to get out of debt is not by planning after incurring the debt, but rather before applying for one.
This also goes for those whose indebtedness is related to credit card spending. Before deciding to get that credit card, which promises diverse benefits from a reward points program to shopping coupons, make sure that your application and use of the card is not on things that do not yield tangible benefits, general spending aside.
Most people apply for a line of credit to buy something that is typically beyond their means. Unless this is something that will impact your livelihood positively for many years to come, sometimes it’s not worth the risk. This can go a long way in avoiding unnecessary calls from your creditor that come after delaying a repayment. This is because when it comes down to making the payments and you realize that whatever you spent the money on is not yielding benefits to you, it can be tempting to default, or at least, you could feel demotivated to keep making those payments.
The same thing goes for credit card spending. Most of the generation Y credit card debt is usually of things that analysts categorize as bad debt. Bad credit (not in accounting terms) is the type of debt that is mostly incurred due to peer pressure or debt that has no positive impact on one’s future. For instance, buying a flashy car or throwing parties to friends, among others. A good debt, on the other hand, could be something like college debt, mortgage, or a business loan, among others.
Generation X credit is often categorized under good debt, contrary to generation Y credit. However, both classes of age groups tend to find it hard when it comes to clearing their debts at times due to several reasons. Here are five of the best tips for getting out of debt.
It is very easy to mess up your debt repayment deadlines if you do not organize your credit. Most people will have a few lines of credit alongside credit card debt, mortgage, and even a car loan eating a good chunk of their paycheck every month.
With so many credit facilities running, it is important to keep everything organized to make sure that you don’t miss out on due dates. The organization may involve things like drawing down a repayment plan, automating your debt repayments or better still getting help from a professional to organize your payments for you.
Cut out unnecessary spending
I pointed out the nature of Generation Y credit card debt and how Generation X credit often differs from it. In addition to this, Generation Y tends to be very uncomfortable when it comes to cutting unnecessary spending. This is due to peer pressure. However, if you are intent on clearing out your debt on time if not in time, then you may need to cut out spending.
This will help you to release some finances which can be directed towards settling you generation X or generation Y credit card debt while the money from your paycheck goes to mortgage and other lines of credit.
Negotiate for better rates
Every creditor will always try to boast about their low rates and diverse benefits attached to their credit products. They know how to talk nicely to consumers and how to convince them to take a loan from them.
You can also do the same, especially given the recent series of rate hikes for those based in the U.S. Experts have already warned about the potential repercussions of the increase in the U.S. funds rate, especially on credit products. This implies that credit card users could see a spike in their interest rates as more hikes are announced. Observing the first two points is crucial though. This is because the first two points discussed here can lead to an improvement in your credit score. You can then take this to your creditor and negotiate for lower rates.
Increase your savings
Yes, you read that right. It makes sense by the way. This is because any type of cash inflow can dry given different circumstances thereby putting your next schedule of debt repayment at risk. As such, saving some extra cash, however small, can go a long way to ensuring that you maintain your budget while at the same time continuing with payments.
While your general savings cover your day to day spending, the extra savings can be used to settle debt repayments. You can save up to a point where you have enough to service you prevailing debts for a period of six months at least.
Make excess payments when possible
The more you pay sooner, the more you are likely to complete paying for a debt earlier than scheduled. Therefore, when you have some extra cash, you can always throw it towards settling your debt.
In the end, you will have fewer debts to manage and you will also save on interest expense. Therefore, when you win that lottery, don’t go on a spending spree, or throwing parties to your fellow generation Y indebted friends, but rather reduce your debt significantly.
DISCLAIMER: This article expresses my own ideas and opinions. Any information I have shared are from sources that I believe to be reliable and accurate. I did not receive any financial compensation for writing this post, nor do I own any shares in any company I’ve mentioned. I encourage any reader to do their own diligent research first before making any investment decisions.
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