Debt can feel like an avalanche slowly rolling down a snowy hill. Starting as a snowball of one missed credit card payment, it can grow over time into several credit card payments, missed mortgage payments, and then utility payments. With the weight bearing down upon you, it’s easy to feel crushed by the responsibility. However, looking at ways to handle debt can sometimes add to feeling overwhelmed. Below are five
Refinancing with Lower Rates
Sometimes, getting ahead of debt is the best way to deal with debt. Refinancing can help lower payments if you’re able to get a good deal on your origination fees and closing costs. If you’re already feeling the pinch of debt, you can refinance to take out additional cash. One mortgage broker in Perth notes that a cash-out refinance offers a way to borrow at a low interest rate.
Debt consolidation involves taking out a new loan to pay off existing debts. A cash-out refinance as discussed above is one way to do this. By putting all your debts in one place, you can streamline your payments into one bill. When interest rates are low, you’ll be able to get a lower interest rate through the loan than through the individual payments which can help lower your monthly bills. For example, if you’re paying off multiple credit cards and paying high rates one each one because you fell behind in your payments, consolidating your debt into one lower interest payment can help you climb out from under the payments.
Debt management, although often confused with debt settlement, negotiates old payments with new payment plans instead of taking out a loan to cancel previous debts. The process usually takes 3 to 6 years to complete. First, you will work with a credit counselor to review your overall finances to create a monthly budget. Then you will plan how to pay off the debt based on your monthly payment abilities and number of accounts that need payment. Finally, you may be asked to use a direct deposit program to pay your monthly amount and then cancel all your credit cards.
Debt settlement essentially creates a way for you to negotiate dollars owed to your creditors. This is a fairly extreme option since it will hurt your credit score. While you can attempt to negotiate your debts on your own, Quantum Finance offers resources to help you find a settlement agent. Settlement agents will work with you to review your debt, income, and savings to help you determine what can be used to pay your debt. Then they will have you sign a contract for you to pay the settlement agent instead of your creditors. The money is put into escrow until you have enough to pay off the negotiated amount. After that, they attempt to negotiate a new amount with your creditors where you pay a lump sum the comes from the escrow. It’s important to have a legitimate settlement agent otherwise they may not be able to settle for you. Keep in mind, that they will take a fee from a percentage of the escrow account. If they do not negotiate well, then you are worse off because you will be further behind in your payments since you paid your money to the escrow account not the creditors.
In Australia, you have the option to present a declaration of intention to present a debtor’s petition. This gives a 21-day protection period where unsecured creditors can’t act. This acts as a probationary period pending bankruptcy. If you then want to file for bankruptcy, you can. Filing for bankruptcy covers most unsecured debts such as credit and store cards, utility bills, and medical, legal and accounting fees. Before assuming it releases all debt, make sure to check with your creditor to see if it will erase Centrelink Debts, Australian Taxation Office debts, victim of crime debts, and toll fines.
Keep in mind that there are also several debts including court imposed penalties and fines, child support and maintenance, HECS & HELP debts, and unliquidated debts.