Is It Better to Repay Debts or to Save First?

Once you finish college, get a stable job, find a place to live and start earning enough money a question inevitably comes up: “Should I start paying off my debts with the money that is left over every month or should I start saving up and then pay my debt once I have a substantial amount on my account?”. The short answer is that you should try and pay off as much of your debt before you start saving money. The long answer will include the “why” as well as the “what” you should do.
Repay Debts

Increasing debts

You see, it is all in the percentages that keep building up the amount of money you either have on your account or you owe. For instance, the money you have in the bank will have a very lowinterest rate, around 1%, while the interest rates on your debt can be anywhere between 5% and 21%, maybe even higher. So in the best case scenario, your debt is going to get bigger for about 4-5% every month, so when you get enough to finally pay off the original debt, the amount that you actually have to pay then will be much greater.

Profit for the bank

Another thing about banks is that yes, they are quite much into business and therefore aim for as huge profits as possible. And the major portion of profits for banks comes from your savings. The amount of money that you save with your bank is used to lend cash to other people or borrowers. The difference at which the bank borrows money from you and the borrowing rate it charges on other customers is their actual profit margin. In simpler words, it will always cost more to borrow money from the bank that what you would save.

Pay off your most expensive debts

Be sure you keep your credit cards after you have  paid them off in full, you will have a relatively good credit rating if you occasionally buy something with them and then pay it off quickly afterward. You can also get an interest free deal on a card and pay it off before the interest free period runs out. This will help you in case something unexpected comes up and you have used up all your savings.

Use your savings

If you have some money in your account right now, you should consider using as much of it as you can part with to pay off those debts with the highest interest rate first of all.  Therefore, you should take a look at your current debts, and mark the ones that cost you the most every year and focus on repaying them with the money you have saved – just leave enough money for your basic needs so you won’t have to take out another loan down the road.
There is something you should be aware of when trying to pay off your debt using your savings – not all debts can be cleared away efficiently using this method. For instance, certain types of mortgages will have actual penalties for paying before the set date. The best solution, in this case, is to take a part of your savings and put it into a different account that is specifically designated for the purpose of paying off the mortgage. The interest will keep building up and when the right time comes you can then use it to pay the debt. Be sure you are well informed about all the circumstances regarding your debt and read everything carefully before you sign.

Exceptions to the ‘paying-off-your-debts’ rule:

There are but very few occasions that can serve as an exception to this rule of paying off debts using your savings.  For example-

  • You can rule out the need to pay off your debts when the debts are cheaper than your savings. this basically means that if you feel that the cost of paying those debts are much higher than what you currently have in your savings account, then there is no point.
  • Penalty exception: if you already have debts that are incurring a stipulated amount of penalty on you, such as mortgages and other exclusive loans, you can consider not paying them until the penalty amounts have reduced. You can leave the cash in your savings account until the penalty is small enough.
  • Interest-free debt exception: This is specifically for those individuals who have constantly managed to pay off their debts so that they eventually become interest-free through prepayments. In such cases, if the interest rate on your debt is lower than the amount your saved cash earns after all tax deductions, you can easily earn from your savings and keep the debts as well.

Conclusion

The best is to make concerted efforts into paying your debts as quickly as possible. The sooner you pay off your debts, the happier and effortlessly you will be while managing your personal finances in the future. The advantages of paying off your debt first should be pretty obvious now – you will want to avoid letting the interest rate blow up and paying as much as you can right now.

What are Pros and Cons of debt consolidation?

It is true that someone who has many debts to pay is always distressed and even buried in depression, if he is going through financial crisis. Car loans, home loans, education loans, credit card loans and so on are basic necessities of a middle class man in this world running at the pace of light. But when all these climb on your head like termite after consuming your pockets, it becomes very hard to cope with the hassle circumstances. Debt consolidation, in that situation, comes up as a sigh of relief. But when anything is related to our money and financial management, it is very important to count on each advantage and disadvantage of it.

debt consolidation

Debt consolidation has its own pros and cons which you should explore before going for it.

Pros

Debt consolidation means to club all your debts and loans into one, which reduces interest rates that is a great thing to trim extra pay offs. All you have to fret about is one-time payment. One very important and aiding advantage of debt consolidation is that you stop getting calls and notices from banks and collection agents. When there is no one to trouble you by calling everyday asking for money, your psychological health becomes positive and this makes you constructive in your thoughts and production at your work. Debt Consolidation Company purchases your worries from the collection agents and pays off credit reporting companies.

If you opt for consolidate debt, it saves you from being declared bankrupt, how good this deal is, only a big debt holder knows. By devising a financial budget and with the help of consolidate debt, you can start to improve your reports and credit stores.

The best thing is you can start your financial management afresh where you can avoid all the wrong decisions you’ve made in past. There will be no one to give you frowns while you do this.

Cons

Once the funds are available, People often fail to manage their finance again causing themselves commit the same mistakes that they’ve done in past. It brings in more problems and accumulates more debts and financial obligations. Consolidation loans give you long timelines like 10 to 30 years to settle your one-time debt which however saves you from debts to pay on short tenures that too at high interest rates. For all this time, your assets or your property remains mortgaged tied to a home equity loan usually. This means your debt consolidation loan is given against the value of your assets which are kept mortgaged. If you fail to pay the consolidate debt, you end up losing your home and assets.

If you analyze deeply, you’ll get to know that in the end you will land paying more over several years than it had to be on short tenures. To burden you in the end, you’ll incur penalties like late fees or so.

So, before going to opt for a consolidate debt, you must be self-aware and calculative in your approach. Once you take a consolidate debt, you should manage your financial structure well in order to refrain these hassles circumstances again.

What to Expect from Debt Consolidation

Debt has fallen on you like an avalanche. You don’t know where to start digging, and all you can think about is how much more debt you  have  in your way. You never thought you’d be in this mess, but here you are – buried. The good news is that there is a way out of the pile of bills with debt consolidation.
Debt consolidation has become a popular option for those looking to eliminate their debt problems as quickly and effortlessly as possible. With the number of companies sitting there to overlook your debts and offer counseling on paying them off, debt consolidation can be a tad tricky to understand at times. So while you’re looking at the stack of bills piling on your desk, are you wondering about how debt consolidation actually works?
Knowing what to expect when you choose debt consolidation will help you finally put an end to your financial madness.

What to Expect from Debt Consolidation

Making an Appointment

The first thing you should do is research the different debt consolidation companies available. One of the easiest ways to check the credibility of a company is by keeping your eyes out for their BBB or Better Business Bureau reviews. If the company has secured an A+ rating on BBB, then you can trust the company with your eyes closed.
Just like any other business, each debt consolidation company has its own fees for the work they will do to help you. While you may not want to go with the most inexpensive company,  getting a good rate is important in starting your road to financial freedom.

  • Start with finding a company of a good and strong reputation. Seek recommendations, read reviews, and research. For example, the National Foundation for Credit Counseling (NFCC) offers certification for counselors and sets certain requirement for member organization. Thus, seeking references from the NFCC will be a good way to start.

Once you find a suitable company, call them to  schedule an appointment. Be sure to ask  about the type of documents you’ll need to bring.

The First Appointment

Duringthe first appointment, your debt consolidation counselor will look at your income, expenses, and debt. He or she will then calculate all of your debts, and then determine the affordability of the amount that you will have to pay per month.t.
 To determine that exact figure, your counselor can look into finding a debt consolidation loan, and start calling creditors to discuss settlements.

Before Your Second Appointment

Between your first and second appointment, your counselor will be hard at work calling your creditors to negotiate a settlement. Many lenders will decrease the amount of money you owe them if you close your account and agree to pay the lower amount. This is where having a good counselor will benefit you. One that is experienced in negotiations and well known in the circuit of creditors will have a better chance  of getting your debt decreased significantly. Some people can see a decrease in debt up to 20%.
While you are at the stage where you are about to schedule a second appointment, to help you live a life that is completely debt-free, a certified credit counselor will calculate your total debts. All secured and unsecured loans are taken into account, which can help create an all-inclusive budget for you.
Once the final amount is settled or all debts, your counselor will go to work on finding you a loan that has the lowest interest rate. With a low-interest rate,  there are higher chances of you being able to afford the monthly payment.

Your Second Appointment and Beyond

At your second appointment, you’ll find out how much debt you’re responsible for, and the loan that your counselor has found for you. If you agree, you’ll fill out the necessary paperwork.
The next step is to determine how you will make the monthly payments on your debt consolidation loan. Your counselor will help you come up with a budget. You’ll use this budget to the best of your ability, and schedule subsequent appointments w to make necessary adjustments, if any. .

Paying fees

Certified professionals will charge you a certain amount of fee. You don’t want to settle with something that’s too inexpensive for you to digest, or go for a company that plans on burning a hole in your pocket. Make a comparison especially when it comes to getting a bang for your buck. You will find non-profit organizations as well, but you will still be expected to pay a minimal fee and some nominal charges to get your consolidation work started.

Final words

Once you manage to grab a hold  on your budget and payments, you will be free to deal with your personal fianances on your own. If you ever need assistance, your debt consolidation counselor is only a phone call away.

How to Choose Best Debt Consolidation Company in USA

I do think that there is no need to drive the nail home why you should try your best to get out of debt trap. There is a line of reasons which are really very good to go through and push you into some prompt actions. Several debt consolidation companies are working in the USA. Here is a list of tips finding the best among them.

How to Choose Best Debt Consolidation Company

Consider industry rating of the concerned company:

A good industry rating for a company is sort of identification mark that says it is a source to rely on. A reputed US credit consolidation company is expected to have a positive rating with the Better Business Bureau or BBB and industry organizations too. A good rank is a sort of piece of pride and so the companies never slip the chance of mentioning the affiliation on their websites. However, there is no harm in doing some additional research and go for verification of good rating as claimed by the lenders. This is ‘rule of thumb’ as to how to choose the best consolidation company in USA. If the company demands upfront charge and several complaints have been pasted against the company, it will be wise of you to move on to other lenders.

Lender’s statement:

The debt consolidation company often arranges for automated payment. It is both hassle-free and worry-free process of debt repayment. But that does not mean you will not ask for banking statement or do the same once in a blue moon. You must get a regular banking statement to know how the deducted money is working as well as the progress report of your balance after money transfer to your creditors’ account.

Is it an inexpensive choice:

The well-known companies are very transparent in their service though cost may be sometimes their down side. These companies always provide in-detail information including the fees for their services. No hidden fees and no effort to hoodwink the customers. They have good will in the market and they swear by ethical business practices. You need to check if the USA debt consolidation company is actually legitimate. Does it ask you to pay in advance?

If it is the case, then the company is operating in defiance of strict USA laws that prohibit the practice of demanding any sort of advance payment. One of the best tips regarding how to choose the best consolidation company is to get everything in writing.

Whether it is repayment terms or interest rate or your eligibility or other requirements, make sure to get everything enlisted in a paper so that there is no scope of denial on part of the lenders.