Read on Twitter
You find yourself overwhelmed with debt and don’t know what do or where to start. Many may feel like there is no way out. There ARE success stories of persons who have turned their life around & managed to significantly reduce their debt by putting a plan in place.
A thread
A thread
Always speak to a qualified professional about any financial move you are contemplating (that may be a bank loan officer, investment advisor etc.) but this may assist in guiding you along the right path and knowing what options exist.
#financetwitterJa
#financetwitterJa
Why does anyone need to reduce/ consolidate their debt? If you cannot meet your monthly expenses, not paying your bills can have a negative impact on your credit score and thus your ability to borrow in the future and your ability to create wealth.
Consolidating or reducing your debt can:
-Assist in improving your credit score
-Pave the way to allow you to qualify for bigger loans like an auto loan or mortgage
- Allow you to have more financial freedom to manage your expenses
- Pave the way for more savings/investments
-Assist in improving your credit score
-Pave the way to allow you to qualify for bigger loans like an auto loan or mortgage
- Allow you to have more financial freedom to manage your expenses
- Pave the way for more savings/investments
So what is a strategy that persons employ to consolidate their debt?
You may not think it is intuitive that to get out of debt you need to borrow MORE. Borrowing to pay off debt CAN be a successful strategy if done correctly.
You may not think it is intuitive that to get out of debt you need to borrow MORE. Borrowing to pay off debt CAN be a successful strategy if done correctly.
Have you ever heard the saying “Borrowing from Peter to pay Paul?” I’m sure you've only heard this phrase in a negative context, but when Peter’s int. rate is 7% & Paul’s rate is 37%, then it may make sense to get a loan from Peter to help to reduce your debt obligation to Paul.
In this example Peter is offering you an unsecured loan with monthly installments whereas Paul gave you a credit card with mounting fees and charges and no end in sight to reducing the debt owed.
Many banks offer debt consolidation loans to assist their customers in reducing..
Many banks offer debt consolidation loans to assist their customers in reducing..
.. their high interest rate debt, to lower more management payments.
Let’s look an example. You have a credit card with a $200,000 balance outstanding and a minimum payment of only $6,000. You are being charged interest at a rate at an Annual Percentage Rate (APR) of 40%.
Let’s look an example. You have a credit card with a $200,000 balance outstanding and a minimum payment of only $6,000. You are being charged interest at a rate at an Annual Percentage Rate (APR) of 40%.
Assuming you only make the minimum pmt & you no longer make additional purchases on the card, it will take you 8.8 years to pay off that debt.
If you converted that debt to an unsecured loan at 10% interest, it would take you 40 months or 3.3 years to pay of the same loan....
If you converted that debt to an unsecured loan at 10% interest, it would take you 40 months or 3.3 years to pay of the same loan....
.. and save you thousands of $$ (assuming the payments are the same). That’s why other lower interest loans (unsecured loans, mortgages or home equity loans or other collateralized debt) are more attractive to replace high interest loans like those associated with credit cards.
You can review the int. rate of your student loans or other debt (locally or abroad) to see if it is even 1% higher than the rate for an unsecured loan from your FI (remember you will still have to qualify).
The lower int. rate is more beneficial to you over the same time frame
The lower int. rate is more beneficial to you over the same time frame
TIPS TO KEEP YOUR DEBT AT BAY:
1. Pay any credit cards off in full. Only spend what you already have to repay to be safe. Avoid them altogether if you do not have the discipline. They can be a good tool to use to build your credit but can be devastating if the debt spirals.
1. Pay any credit cards off in full. Only spend what you already have to repay to be safe. Avoid them altogether if you do not have the discipline. They can be a good tool to use to build your credit but can be devastating if the debt spirals.
2. A zero-interest balance transfer is a product that you can explore if you would like to keep a credit card but have a lower interest rate on the card. Look for a bank that has this option and has lower rates on their credit card products.
3. Be aggressive in your repayment plan. Pay off as much as you can as soon as you can.
4. Repay your debt obligations on time. It will make a difference in your credit score which as I mentioned before, is important for you to improve to access credit in the future.
4. Repay your debt obligations on time. It will make a difference in your credit score which as I mentioned before, is important for you to improve to access credit in the future.
5. Pay high interest loans first
6. Try to create a budget and stick to it. Don’t spend more than you earn. My budget template + expense tracker on http://financialcentsibility.com/calculators/ can help you understand exactly what you are earning & spending so you can know where expenses can be cut.
6. Try to create a budget and stick to it. Don’t spend more than you earn. My budget template + expense tracker on http://financialcentsibility.com/calculators/ can help you understand exactly what you are earning & spending so you can know where expenses can be cut.
Start assessing your financial position today so you can reduce your debt and save/invest more!
Visit this article on http://financialcentsibility.com/consolidating-debt-jamaica/
#FinanceTwitterJa
Visit this article on http://financialcentsibility.com/consolidating-debt-jamaica/
#FinanceTwitterJa
