Don’t Bite Off More Than You Can Chew | How to Manage Debt Responsibly

Contrary to popular belief, there isn’t anything wrong with borrowing money. In fact, sometimes you have little choice but to borrow money to meet a need. Having a little bit of debt to your name may even help you out when you want to purchase a house, or perhaps wish to borrow cash for a genuine reason.

The issue isn’t so much with borrowing money, it is biting off a little bit more than you can chew when you do borrow it. We want to help you out and make sure you don’t dig a financial pit.

Borrow from Licensed Lenders

You think this would go without saying, but you will be surprised at just how many people will borrow from less-than-reputable companies. If you do this, then you are borrowing irresponsibly. You will have high interest rates, and there will be nobody that “has your back” should things go wrong. Unlicensed companies are operating outside of the law. Avoid them and avoid inescapable debt.

Only Borrow as a Last Resort

You should never be borrowing money for the sake of borrowing money. Before you apply for a loan, you need to think long and hard about whether you genuinely need the cash or if you can sort something else out.

If you have no other choice but to borrow money then make sure that you only borrow exactly what you need. Nothing more. The more money you borrow, the more you will need to pay back.

Can You Afford to Pay Back the Loan?

When you are borrowing, make sure that you understand the repayments amount.

Before you agree to sign up for a loan, we suggest that you make a budget. You need to know exactly what you have coming into your bank account, and exactly what is leaving your bank account, every month.

You need to make sure that you have enough free cash to be able to afford the repayments on your loan (https://theislandnow.com/blog-112/effective-debt-management-strategies-to-pay-off-debt/). If you do not have any money to spare, then do not accept the loan agreement. It doesn’t matter how much you need the cash, this is just irresponsible borrowing.

Don’t Take on Too Much Debt

We have seen it time and time again. People see that they have a good credit score, and they apply for loans and credit cards galore. Don’t do this.

As we said before, make sure that you only borrow money when you have no other choice. We know it can be tempting to have all these lines of credit available to you, but you would just be biting off more than you can chew. You will have to pay them all back, after all. Could you cope with masses of debt if you lost your job? Probably not.

Avoid High Interest Loans

Want to know one of the best ways to kiss goodbye to proper debt management? Opting for high interest loans such as payday loans. While they will accept just about everybody with a job, the interest rates are so high that you really have little chance of being able to afford the repayments, and this will cause the debt to roll over to the next month. This makes it even more unaffordable.

If you want to avoid biting off more than you can chew, then you must shop around to find the best loan for your situation.

The Consequences of Mismanaging Your Loans

If you fail to do apply a debt strategy and do end up biting off more than you can chew, then you are going to be in a whole heap of trouble.

While you may not think a single missed payment is a bad thing, it is. Lenders will charge fees for missed payments. These fees can start to add up pretty quickly, particularly if you miss multiple bill payments. A couple of months of missed payments and your debt can very quickly spin out of control, and it can be pretty difficult to recover from something like that.

A single missed payment will also have an impact on your credit score. This can make it difficult to borrow money in the future. So, one missed payment is not going to impact your credit score all that much, but multiple ones will lower your credit score. You can destroy your credit score from just a couple of months of missed payments, and it can be exceedingly difficult to bring everything back up to scratch again.

When you find it difficult to borrow in the future, you may not be able to apply for a mortgage. You may not be able to rent a place. You may not be able to get the internet or cable TV subscription. You will simply struggle with anything that involves money with other companies. This is something that may impact you for years to come if your debt mismanagement is bad enough.

Finally, you may find that some jobs require you to have a decent credit score. These will be mostly those related to the financial industry. While this is not something that will impact most people, we do want to point out the fact that you will be limiting your job options a little bit by mismanaging your debt.

In the End…

If you already feel as if you have bitten off more than you can chew when it comes to debt, all you can do is work as hard as you can to bring up everything up to date. It may take you years to recover.

If you have yet to borrow, then follow our suggestions at the start of this page. This will ensure that you run the smallest risk of dealing with debt issues.

How to Get Out of Debt Faster

If you’re in debt, the reality of owing that much money might feel like too much to face. But when disaster strikes, you’ll have to face the situation. Unfortunate events might happen in rapid succession, like a job loss, home repair, or a sudden illness. That can knock an already fragile financial situation off track and make you feel like you can’t keep up with your payments anymore. Paying off debt is one of the hardest ways of taking control of your life, but with enough work, you can do it. Maybe you are already being contacted by the Rossendales? Don’t know who they are? Find out who are rossendales.

Get a Better-Paying Job

You can save money to help you get out of debt sooner, but there’s only a certain amount to go around, so getting a job that pays better might be a better option. Consider your interests and think about something that has a better salary. Careers in science, technology, engineering, and mathematics (STEM) often come with better salaries. These jobs often require a college degree, so if you want to stay out of debt, you may want to consider going back to school. Don’t be afraid to take out private student loans since you might be able to get a discount on the interest rates. The interest is often tax-deductible as well.

You might also get a second job, which will help you further amplify your efforts to live a debt-free life. Even if you don’t realize it, you probably have a skill or talent you can monetize. Consider becoming a virtual assistant, mowing yards, doing freelance writing, or babysitting. There are websites where you can find ways to earn extra cash. Just make sure that whatever you earn goes toward paying off your loans instead of unnecessary expenses.

Pay More Than the Minimum

Just because you have to pay a certain amount each month doesn’t mean you should stop there. Say you owe around $15,000 in credit card debt and only pay the minimum of a few hundred dollars each month. With an interest rate of around 15 percent, you’ll be chipping away at it for over a dozen years. Of course, that’s assuming that you won’t rack up the balance even more. Whether you have personal loans, credit card debt, or car loans, you can pay it off sooner if you do more than the monthly minimum. That will help you save on interest while allowing you to pay off the balance sooner. Just make sure the terms of your loan don’t outline any penalties for doing this. If you need some help, there are many free online tools to help you track your progress.

Make and Stick to a Minimalistic Budget

You’ll need to cut your expenses as much as possible and live on the minimum. Make a budget that only allows for the necessities, like rent and simple food, so the rest can go toward your debt. While this budget will look different for everyone, it shouldn’t have extras, like subscriptions or going out to eat. Remembering that it’s only temporary may give you the motivation to stick to it.

How to Manage Your Debts?

All of us are required to apply for a loan at a certain point in our life. The reasons vary – some of us like to buy a new car, a new apartment, renovate our home, etc. It is no shame if our current financial status is not enough to pay a certain service or product. After all, a big majority of the world’s population have paid off a debt or are in the process of paying it off.

There are many things to consider before taking out a loan – the amount, the lender itself, fees, etc. After your loan is accepted, you need to start thinking on how to manage it and keep up with the payments. Here are some things to know when managing your debt.

Consolidation Loans

First off, let’s start thinking about what you should do if you are unable to pay off your debts. There is a solution to this problem and it goes by the name of a consolidation loan. This type of loan is a type of refinancing that allows you to pay off all other debts. Many people have been saved by this type of loan because it has several advantages over the standard loans.

One of the best features is that it gives you a chance for a fresh start. You start from 0 and with experience on how to manage your finances. The interest rates for consolidation loans are usually lower, so you might end up paying a smaller debt. You can learn more about this loan if you read what best consolidation loans expert say.

All you have to do is stay informed and let cool heads prevail. All of us have been in tough spots throughout our lives, but we always find solutions. Such is the case with consolidation loans.

Decide Which Debt To Pay Off First

If you have multiple debts that you need to pay off, you need to make a list and prioritize some of them. Paying off credit card loans is usually the best solution because this type usually has the highest interest rates. Paying off small loans might also be a good solution. It all depends on your financial status.

Try To Keep Up With Monthly Payments

Keeping up with monthly payments is important because your credit score depends on it. The least that you can do is to pay the minimum amount each month, but if you are able to pay more than the minimum, do it.

By paying off more than the minimum, you save money because the interest rates will be lower. You also pay off the balance faster and you are likely to increase your credit score. Having a good credit score is extremely important these days. A good credit score increases your creditworthiness and you are more likely to get a loan accepted in the future if you need it. Yes, bad credit loans are also available, but they have surprisingly high-interest rates.

Plan Your Expenses

While in debt paying mode, you will have to conclude that you cannot spend your money recklessly. Make sure you plan your expenses and prioritize things that are essential to you. Food and bills should be at the top of the list. If you plan your expenses, you might end up having extra money which can be used to pay off your loan and increase your credit score. Planning is one of the most important and most valuable activities when paying off debt.

Things To Consider Before Getting Loans For Bad Credit

Typically, having a good credit score is essential for your financial health. It refers to the figures ranging from 300-850 that shows how creditworthy you are. This implies that if you have a high credit rating, you become an attractive borrower for several lending companies and other financial institutions.

However, if you have a bad credit score, your ability to borrow money can be significantly affected. Not only that, but your options are limited because most banks and other big lenders tend to reject loan applications of borrowers with bad credit.

Fortunately, it’s not impossible to apply and get a loan with a poor credit score. While it can influence the rates and fees lending companies will offer you, it’s crucial to consider some things before getting loans even if you have a poor credit rating.

If you’re planning to take out loans for bad credit anytime soon, here are a few things to keep in mind from the get-go:

Bad Credit Loans: What Are They?

When it comes to getting a loan for bad credit, the first thing that comes to mind is the bad credit loans. These loans are considered a relief option for borrowers with limited borrowing options due to their low credit ratings. Similarly known as personal loans, bad credit loans can also help cover a financial emergency despite having a credit score below the standard figure. These loans can be available for you if you need immediate cash to make bill payments or repair a house or car.

Moreover, bad credit loans work the same way other personal loans do. They’re the funds you borrow from a lender and repay them in monthly installments. Although having a high credit score might not be one of the qualification criteria, there are requirements you have to comply with before obtaining a loan.

Bad Credit Loans: What Should You Consider Before Getting One?

Now that you’re familiar with what bad credit loans are, the next step is to explore the essential considerations before you obtain one. Generally, taking out a loan with a low credit score can be difficult, but it’s always possible.

Below are the things to consider before getting loans for bad credit:

1. What Number Makes You A Bad Credit Score Holder

You should know what number makes you a bad credit score holder before getting a bad credit loan. As mentioned, credit scores are necessary to measure your capacity to repay the money you borrow from a lender. They usually range between 300 and 850. If you have a higher credit rating, this means you have the ability to make loan repayments.

Conceptual photo showing printed text Bad credit loan

On the other hand, bad credit scores typically begin at 650 and below. If you have this number, you’re considered a bad credit score holder, which makes you a prime candidate for the loan. However, it’s essential to note that determining whether you have a good or bad credit score differs from one lender to another.

Therefore, you should know first whether your number falls within the purview of a bad credit rating before applying for a loan to a particular lender. That way, you can ensure you’re qualified, thereby making the process as fast and smooth as possible.

2. Lender To Go To

Since most banking institutions have strict lending rules and regulations, your rating might not be enough for you to qualify for a loan. Luckily, there are other lenders who can help you take out a loan even with poor credit. These include:

  • Online Private Lenders

They offer all types of loans, such as cash loans, instant loans, emergency loans, and payday loans with no credit check. This means borrowers can expect fast loan approval despite the minimal requirements needed for the application. For instance, worst credit loan providers will only require valid identification cards, proof of income, and a completed application form.

Due to the internet, the application is easier and faster. Just fill in a form, submit the requirements, and wait for the approval for a few minutes. Then, the loan proceeds can be withdrawn from your bank account on the same or next business day.

  • Pawnshops

Another great way to secure a loan even with a poor credit history is to put a valuable personal asset such as a gadget or a piece of jewelry as collateral. Loans from pawnshops are known as secured loans. Without looking at your credit score, you can be granted a loan provided you give something of value as a security. In case you fail to make repayments, the pawnshop will have the right to seize your pawned item and put it for sale.

  • Credit Unions

They can also be an excellent way to get a loan for bad credit. Due to their flexibility and lower interest rates and fees, they can be one of the best options for you. Also, most credit unions are exempt from paying taxes and are more willing to accommodate borrowers, regardless of their credit rating.

As you can see, there are many lenders to choose from. But, depending on your financial needs, one might be better than the others. Therefore, it’s best to consider the type of lender that will work best for you before getting a loan for bad credit. That way, you can ensure you’re dealing with the right lending company for your financial needs.

3. Debt-To-Income Ratio

To increase the probability of getting approved for a bad credit loan, it’s best to first calculate your debt-to-income ratio before applying. This ratio refers to the amount of your monthly income that goes to the payment of your debts.

Generally, most lenders look at the applicant’s debt-to-income ratio to determine whether they’re eligible for a loan. And to qualify, they prefer borrowers with a 35% or lower ratio. In other words, not more than 35% of what you earn should be spent in paying back debts, including the bad credit loan you’re applying. In such a case, lenders will not hesitate to approve your application even if you have a poor credit rating.

To compute your debt-to-income ratio to know if you can take a loan, divide all your debt payments by your gross monthly income. After moving the decimal point into two places from left to right, you already have a ratio.

4. Interest Rates

Ideally, a credit score is one of the essential factors in determining what interest rate a lender will provide you. This means that having a bad credit score can impact the rates available to you. For this reason, it’s best to check the rates before getting a loan with bad credit. Shop around for the best possible offer from multiple lenders to make the most out of your application.

Hence, you can ensure the rates you choose will not place you in further financial turmoil by being unable to pay the monthly repayments moving forward.

5. Loan Term

Again, bad credit loans work similarly to other personal loans. As such, loans catering to borrowers with poor credit ratings also have different loan terms. Whether it’s 10, 15, 20, or more, you can avail of these terms depending on your loan agreement.

However, before taking out a loan, ask the lender if you can change or adjust the term to make repayments faster and easier. Also, know whether they can offer opportunities to pay your loan back earlier or later, depending on what’s convenient for you. In doing so, you’ll find out how the loan terms can affect your interest rate and monthly repayments.

6. Review Of Your Credit Report

Of course, you don’t want to have bad credit during your lifetime. Going forward, you probably want to increase it to get the most out of several financial services without restrictions. Hence, get your credit report to understand your score better.

Usually, your credit report outlines everything being accounted for to come up with your credit score. From your loans to your credit card transactions and other debts to pay, you’ll see these items in the report.

Thus, if you want to make sure all the information is correct, take the time to check every detail and see if something needs to be fixed immediately. That way, you can make changes and boost your credit score before applying loans for bad credit. After all, an improved credit rating means making it easier to acquire a loan next time.

7. Current Financial Situation

More than anything else, consider your current financial situation before applying for a loan. Look at your yearly and monthly income and expenses to figure out how much money you can afford to pay your loan. Doing so can help you understand whether taking out a loan, despite your credit score, is the best financial decision you can make for yourself.

Bottom Line

Indeed, living with bad credit is never easy. There are many things to consider to make sure you can still be approved for a loan despite your credit score. Therefore, if you want to make the application process as straightforward as possible, keep these points, and you’ll be more confident in your decision to secure loans for bad credit.

5 Ways to Cope with Your Debt in Coronavirus

The coronavirus pandemic and the resulting lockdown has negatively affected the financial situations of many people, particularly those who were already in debt. Debt payment plans on mortgages or credit cards that you set up when you had a steady income may be unmanageable now that you’ve been laid off or your work situation has changed in some way.

Coping with debt and avoiding bankruptcy could be your main concern during the lockdown. Thankfully, there are strategies you can use to manage, reduce, or prolong your debt payments during the quarantine.

  1. Know your loans

If you have loan payments, your provider may be able to give you valuable information to help you change your plan or to learn information that could ease your situation. For instance, interest and payment schedules on student loans are on hold right now.

If you are working on very low income right now or out of a job altogether, you can renegotiate a plan that’s a lighter financial load. If you’re still in school, there are also far fewer restrictions and withholdings related to income for new loan applications.

Your lender, whether it’s a bank or the federal government, may work with you during this time to renegotiate your payment schedule. There may be provisions already in place for you to have easier loan schedules. It pays to check with your loan lender to know your options.

  1. Make a schedule

No matter how you are treated by your lender, you need to keep track of what you owe. Credit scores are going to take a hit during the lockdown because of people’s inability to pay off their debt.

This means that if you’re pressed for funds, you shouldn’t be making generous payments on one loan and ignoring another. You should be working out the minimum payments on everything in order to keep your credit score afloat.

Savvy moneymakers often plan to reduce their debt each month and make their schedule accordingly. 

However, there may be more important things to worry about right now than getting out from under a loan.

  1. Spend wisely

Many of us received a $1,200 stimulus check for the lockdown situation. A lot of those who did probably rushed out to get the new Animal Crossing game, but you should consider the best possible use for this money.

You should think of this money as a resource to get your bills in better shape and keep your credit score above water, not play money.

  1. Keep a budget

Budgeting is good advice even without a pandemic to worry about. However, it’s even more important to keep a stable savings account during the lockdown because you need to stay ahead of your debt and prepare for the worst.

With no job and the possibility of getting sick, you need to cut extra expenditures so you have a little extra for a rainy day.

  1. Refinance for the future

You may be just trying to scrape by right now, not even considering that refinancing your house could be an advantage. However, a savvy investment decision right now could be a huge benefit to your situation.

Mortgage rates are at record lows right now in order to try and get money flowing as per usual. If you plan on moving after the crisis has passed, refinancing doesn’t make sense. However, if you plan on living in your home for a long time, it could be a financial boon for you for years to come that you financed during a period of such low rates.

Closings are a problem right now because people are scared to leave their homes even to see their attorneys. However, many lawyers are providing people opportunities to do so safely, such as allowing them to remain in their car while documents are signed or even using facetime on computers to give remote notarization (they’re called “eClosings”).

Regardless, you should consider it as an option that could get you a loan with a better rate.

The Takeaway

Debt consolidation may not be the first thing on your mind if your family is out of toilet paper. However, those who are out of a job or working at a greatly reduced income should take steps to manage their debt.

This includes contacting your lender to figure out your options, using wise saving and spending tactics, and even considering refinancing if the terms are right.

The pandemic is changing standards of saving and investment. Many lenders know this and are willing to help you manage your debt. It just takes a little communication and planning on your part to learn your options. 

How to Stay Out of Debt Long-Term

Getting out of debt is only the first part of having a healthy financial lifestyle because staying out of debt long-term is just as important. The key to achieving this is to form healthy habits around money and to set financial goals that are realistic. Money management is crucial for avoiding debt in the future.

Start With an Honest Analysis

To create a debt-free lifestyle, you have to begin with an honest analysis of your current financial situation. Although there are many methods that can help you avoid starting a new debt cycle, they will not be enough if you do not understand where your money goes every month.

Start with a budget and write down every expense. You should do this every day for a month to get an accurate understanding of your money. Then, analyze where you spend your money and how much you save. By recognizing your current financial obligations, you will be able to plan better. 

Look at Your Bills and Regular Payments

If you are like mostly people, your paycheck is torn to pieces every month by bills. When there is nothing left, it is easy to fall back into debt to stay afloat. Start by listing all of the regular payments you have to make and their amounts. Next, contact each company and ask how you can save money or get discounts. For example, there are many car insurance discounts that can help lower your monthly bill. Look at all the other bills you pay, such as home or renter’s insurance, internet, phone, cable and other services.

Once you have lowered the bills as much as possible, look at how you pay them every month. Some companies add extra fees for doing monthly installments, and you end up paying interest on credit cards if you do not pay them off right away. Make adjustments to lower these unnecessary fees by paying all the bills on time.

Build an Emergency Fund

One of the main reasons people end up in debt is because they have an unexpected expense that they cannot afford to pay, so they take out a loan or put it on a credit card. However, an emergency fund can prevent you from going into debt in many circumstances. It acts as a safety net for your finances during difficult times.

You can set up a separate savings account at your bank and categorize it as a personal emergency fund you do not touch. Another option is to use a savings app like Qapital that lets you set up rules and goals to transfer money, or you can start with a lighter option like Acorns and save your change in an app.

Remove Authorized Users

Sometimes you may be the one who is financially responsible, but other family members may have more trouble avoiding debt. You can discuss your goals and desire to stay debt-free with them. If this does not work, then you may need to take more drastic measures, such as removing them from accounts.

You can remove family members as authorized users on your credit cards and bank accounts. This will prevent them from overspending. Even if they are not creating financial havoc, you may still want to remove them from the accounts. This is because it is easier to keep track of money if only one person is in charge of it.

Lower Your Credit Limit

If overspending is a habit that is hard to stop, consider creating obstacles for yourself. For instance, you can ask credit cards to lower your credit limit. This will prevent you from charging more than you can afford and stop you from going into debt in a simple way.

Before you take this step, you have to consider that lowering your credit limit may lower your credit score. One of the metrics that affects your score is the credit utilization number, which looks at how much credit you have used every month compared to your limit. If you are going to lower your credit limit, make sure you also lower your monthly spending, so the credit utilization number does not go up.

Increase Your Income

If you want to spend more, you have to earn more first. Increasing your income may not be the simplest way to avoid debt, but it can have the best consequences. Whether you get a raise at your current job or start a new higher-paying position, the goal is to bring in more money.

You may also want to consider hustles or side gigs you can do in addition to your job to earn more. Do you have a talent you can monetize, such as painting portraits or dogs or making jewelry? Are you able to teach music or dance classes? Are there things you can create or find to sell? Consider innovative ways to earn money and explore the options.

Stick to a Money Routine

None of these tips to avoid debt will help you if you are not able to stick to a regular money routine that keeps you from overspending and going into debt. Removing authorized users or getting a discount on your phone bill will not be enough long-term if you do not change your mindset about money and develop healthy habits. You need a stable and healthy relationship with your finances.

A healthy money routine means constantly being aware of how much you earn, save and spend. You need to know these numbers every day. This is not something you calculate once a month and shove aside. You have to pay attention to your spending and savings because it is the only way to prevent debt from accumulating again.

You should review your bills every month, pay attention to any new fees and track every penny you spend. Monitor your savings and investments to make sure you are on track and have a healthy emergency fund. You can stay out of debt, but it takes work and dedication.

How to Fight Debt at the Source

Debt is not an abstract concept. Rather, people accrue debt for a reason. It  might be to pay for medical bills, or to attend college, or to start a small business. Yet, because so many people struggle with debt, it can be easy to forget how debt occurs in the first place. To that end, today we’re going to focus on common sources of debt. We’ll explain what causes debt, what individuals can do to prevent taking on debt, and how they can get out of debt quickly.

Good vs Bad Debt

Having debt isn’t always a bad thing. In fact, paying off a loan successfully can boost your credit score significantly. The difference between good and bad debt is simply your ability to pay it off. If you’re capable of paying off a debt quickly, then it won’t present much of a problem. In general, avoid taking on debt that you’ll struggle to pay off in the future.

Preventative Measures

Of course, some debt is unavoidable. After all, if you get sick, you have to  visit a doctor. And that costs money. Still, it’s possible to take preventative action now to lower your chances of going into debt later. For instance, you could visit an STD screening center and thus address a medical issue with a minor investment before it becomes a major problem. This is obviously good for your health, but it’s also beneficial for your financial standing as well.

Mitigate Against Debt

Again, while certain debts may be unavoidable, they can be delayed and mitigated against. Let’s consider another example: education. Almost everyone has to take out some sort of loan to attend college. Savvy individuals can ease their financial burden in the future by going to a community college for a year and then enrolling in a more traditional university. It’s a simple concept, but a powerful one: the less debt you take on, the sooner you’ll be able to pay it off.

Change Your Lifestyle

No one should ever get comfortable living with debt. The longer you let a  debt exist, the more it will cost you. As such, it’s imperative to do everything you can to eliminate any debt you have as fast as possible. This may mean that you need to alter your lifestyle in the interim. While it would obviously be disappointing to go without certain creature comforts, your first priority should be to balance your accounts. Once you’re in a healthy financial position, you can then start to indulge a bit more. Trust us, it’s preferable to filing for bankruptcy!