Whenever people begin to accrue debts, they think they know the best debt solutions and can pay them off.
The vicious debt cycle can cause people’s lives to go out of control quickly.
Over the years, people tend to accumulate different kinds of debts. The cycle usually starts when individuals begin to spend more than they earn.
The reasons behind the excessive spending could be anything from utter ignorance to absolute needs.
Yet, their plan to pay off the debt is often not adequate. Hence, they keep on incurring more debts as due interest grows. As such, here we have some great solutions to lead a debt-free life.
But, before that, it is pertinent to know why individuals accrue debts in the first place.
Legitimate Factors That Push People Into Debt
Even the best financial planners often witness their life spiralling out of control in a fraction of a second. They retain no control over it anymore. The burdensome liability can occur for various reasons.
Necessity is one of the primary causes of people going into debt. Sometimes, people may be hit with unwarranted expenses, such as repairs, medical bills, reduced income, etc.
As such, they are forced to borrow money to keep food on the table and pay their rent.
Such situation cannot be brought under control swiftly. As a result, people can get into debt, and they can only hope to recover from it if they get their hands on some of the best debt solutions in the market.
- Decreased Income
People budget their expenses based on their income. As such, countless people live from paycheque to paycheque.
However, in various instances, they can find themselves with reduced income.
For example, a poor economy can cause employers to cut salaries to keep employees employed.
Or, one of the two breadwinners of the family could be laid off. Unfortunately, most people consider it as a temporary setback.
As a result, they do not act quickly and effectively to overcome the situation. They keep spending money without any regard to the reduced income. Therefore, they fall into debt.
- Inadequate Savings
It is an excellent idea to keep some money aside for rainy days. However, most people do not have sufficient savings that they can access in case of emergencies.
As a result, they need to take high-interest loans to cover those expenses. It causes them to get into debt unintentionally.
It would be wise to try to build good savings early on in life.
Divorce is more common today than it was in the past. As such, as the couples split, it causes massive strain on their personal finances.
So, they begin to borrow money to keep up with the expenses, which causes them to fall into debt.
Bad Habits That Causes People to Get Into Debt
Many people have legitimate reasons that cause them to accrue immense debts. But, others seem to accumulate large debts because they make bad decisions and cannot control their actions.
Gambling is an addictive form of entertainment for many people. Thus, avid gamblers often find it difficult to control the urges to place a significant amount of money in the bets.
Plus, with technological advancements, online gaming and gambling have seen significant growth.
These online activities can be funded with credit cards easily. Thus, uncontrolled expenses cause people to fall into debt.
- Poor Money Management
It may seem surprising, but many people cannot seem to budget their expenses accurately.
Inadequate budgeting means that they spend more than they earn. In most cases, the money spent is on entertainment or any unnecessary expense.
Plus, they do not have a proper budget to track their expenses. As a result, they end up borrowing money to keep up with their lifestyle.
Social standing means a lot to many people. They are consistently concerned about how people perceive them.
This, in turn, causes them to spend extravagantly to keep up with their social circle.
As a result, they incur debt to keep up with the false pretense that they are financially well-off.
Yet, people can find some of the best debt solutions online to get relief from these burdens in their lives.
What Are Some of the Best Debt Solutions?
There are many possible ways to deal with debts in a straightforward manner.
- Debt Consolidation Loans
Despite being in debt, if the borrower has an acceptable level of credit, they can accumulate all debts into one at a lower rate of interest.
The borrower retains control over loan duration and their ability to seek new credit lines.
While it may seem similar to debt management programs, the primary difference is that it requires no credit counseling agency.
The borrower can do it by themselves. It is one of the best ways to manage debts.
- Debt Settlement:
In debt settlement programs, an individual would hire a consultant who would negotiate a reasonable deal with their lenders, which would be around 30-50% of the existing debt.
But, before they proceed, the borrower would need to stop making payments and put that money in a separate savings account.
In the meantime, the debt relief company would negotiate with the lenders to settle the debt.
In short, a borrower pays a lump sum to the lender and gets their remaining debt forgiven.
- Debt Management:
Debt management programs involve combining different debts from several creditors into a single balance with a preferably low rate of interest.
As such, the borrower can then pay off the debt over a period of time, usually three to five years.
However, it will not necessarily decrease their amount of debt. The borrower will only save money from the decreased interest rates.
It requires the borrower to work with a credit counseling agency to figure out a repayment plan.
- Debt Avalanche
This method aims at debts that charge the highest interest rates. It usually helps save time and money.
- Debt Snowball
This method aims to clear the smallest debts first. The borrowers pay it off in full and then proceed with the bigger ones with the amount used to pay the small ones.
If the borrower has no way of repaying the debts in five years and their debt is greater than 40% of their yearly income, then bankruptcy is the preferred way to proceed.
It gives them a fresh start, and their credit score can improve in six months or so.
However, it is a lengthy, complicated legal process. So, it would be ideal to hire an attorney to deal with it.
While there are many options, debt settlement and debt management seem to be the go-to method for most borrowers.
What if a Borrower Is Not Qualified for Debt Consolidation?
In many cases, the borrower’s credit score may take a massive hit. As such, they may not be eligible for debt consolidation.
So, their best plan would be a debt management program. They can make monthly payments to settle their outstanding balances.
Many might argue that debt settlement is a better approach. Yes, it could be if the borrower has a lump sum of cash in hand to pay off the debts.
How to Deal With Unsecured Debts?
Some examples of unsecured debts include credit cards, student loans, medical bills, etc.
One of the best debt solutions for such debts is a debt management plan.
Credit cards usually have high-interest rates. So, it would be ideal to manage them using a long-term repayment plan.
However, the borrower cannot use that card until the repayment is complete. Nonetheless, they can obviously combine all such outstanding balances at a significantly low rate of interest.
How to Deal With Delinquent Debts?
Borrowers with delinquent debts mean that they have not made payments towards their outstanding balances for at least six months.
As a result, they may not share a good rapport with their creditors. A debt management program is an unlikely route since the borrower has not been able to make payments for some time.
So, their creditors may not agree with it. Plus, their credit score means that they will not be eligible for debt consolidation or other relief methods.
Therefore, it may not be one of the best debt solutions in this case. Hence, they have two choices – debt settlement or bankruptcy.
A debt settlement program could help the borrower to settle the debts with a lump sum of money.
The creditors would prefer it because they would be happy to collect some money instead of nothing at all.
Best Debt Solutions – Is Bankruptcy the Perfect Way Out?
Once a borrower files for bankruptcy, they will stop receiving debt collection calls, lawsuits, and wage garnishment.
However, it would be a massive blow to the borrower’s credit because the record would stay for up to 10 years. Hence, bankruptcy should always be the last resort.
Choosing an Ideal Debt Relief Company
A debt relief company helps negotiate with lenders on behalf of borrowers to decrease, cancel or settle the outstanding loans.
They can try various methods to do so, such as debt management or settlement programs.
Upon consultations, they are usually responsible for coming up with the best debt solutions for you.
While most companies are proficient in handling debts, reputed companies are known for dealing with only a certain type of debt. Therefore, there are some factors that an individual would have to consider before choosing an apt debt relief company for them.
- Type of Debt:
First and foremost, the borrower would need to look at the type of debts they have.
Then, they would need to find a debt relief company that caters to those types of debts.
For instance, it may be difficult to find companies that handle private student loans.
- Amount of Debt:
In most cases, the debt relief companies necessitate a debt of at least $10,000.
As a result, whether the borrower is eligible for certain debt relief programs depends on the amount of outstanding debts.
- Upfront Fees:
There is no guarantee that a debt relief company will be able to pull off a deal for the borrower. Hence, companies that ask for upfront fees are not reliable at all. Most reputed companies do not charge such fees.
This industry is filled with reputed companies and scammers.
Thus, it is essential that a borrower chooses a company that is very clear and transparent about its debt settlement process. Otherwise, the borrower may get scammed.
It is pertinent for the borrower to know the program duration, risks of non-payment during the program’s duration, etc.
In addition, they could check the company’s website to ensure the company made public disclosure about its procedures.
Before selecting a specific debt relief company, it is pertinent that the borrower checks if its fees are reasonable and transparent. Fees usually vary from company to company.
- Years in the Industry
A successful track record that stretches for many years indicates that the company is capable of getting the job done.
Ample experience in the industry is essential for a company build good rapport with creditors.
- Customer Experience and Satisfaction
It is ideal to select a company that has countless satisfied customers. Look for company reviews on Better Business Bureau and similar sites. Plus, thoroughly read customer reviews to understand their overall experience with the company.
In addition, try to contact previous clients directly if possible. They could help provide vital information about the company and its work ethics.
So What’s the Takeaway Here?
Instead of looking for the best debt solutions, it is wise to avoid debts if possible.
Avoid making mistakes that could push oneself into a vicious cycle of debt.
However, if someone falls into debt due to circumstances, they do have the opportunity to get out of it.
They have at least six ways to get out of debt and lead a debt-free life. Of course, each way has its own pros and cons.
There are ways to deal with unsecured loans, delinquent debts, etc., without damaging the credit score too badly.
Plus, if an individual needs to seek a debt relief company, they should do their due diligence to ensure they selected an appropriate company for the job.
Last but not least, any individual thinking about bankruptcy should only consider it as the final course of action.