How Your Debt Stacks Up In Personal Finance
No matter whatever you have learned about persona finance till date, good debt is actually a thing. It is somewhat defined as debt used to purchase something, to increase the current value. The primary example has to be home mortgage. As per maximum experts, home mortgage is a good debt because your house’s value will grow in years ahead along with offering you a shelter to live in. On the other hand, borrowing educational loan can be another example of good debt, as it helps you to earn some more money over course of working life. Now the question is where do you stand in your debt life?
According to a survey made recently, around 25% Americans fail to save money. Most of them owe average of around $95,000 on home mortgages. On the other hand, people have average household debt of around $112,000, which is way more than the $15,000 in credit card debt.
Increase in interest rate and your personal financial help:
If your family is under a lot of debt, things are somewhat going to change for the worse. Few weeks back, Federal Reserve raised the interest rates in the USE, which is likely to make debt rather expensive than before. Let’s take an example for better understanding. A major credit bureau has forecast that the average credit card balance per customer will hike to $100 within few more months, and will reach to around $5500. It has further been forecasted that the average credit card debt is likely to be around $6000 within few years’ time.
Now the impact on every individual is that with a rise in the interest rates, the monthly payments on such credit card debts are subject to increase as well. But, you have the interest rate on the mortgage, which is subjected to remain the same, unless you thought of adding a variable rate loan to it.
Ways to stack up:
Now, you might be wondering how you can stack up debts. Well, for that, asking some questions to your mind beforehand can help. Do you think your family owes over $15,000 in credit card related debt? Does the household based debt is over $117,000? Do you feel like owing over $95,000 under mortgage scale? If you are unfortunately part of that 52% Americans, then you might find it actually hard to pay bills on time.
- So, what about student loans? According to some journals, around 43% of 22 million people with student based loans on their shoulder are not been able to make any payments. Again, according to that same old journal, 1 out of 6 student loan borrowers are in default. It means a year has passed since they make any payment.
- Always remember that defaulting on student loan can force you to be in terrible mess. It can provide some terrible consequences. You can feel your wages disappearing and losing your eligibility for any repayment, forbearance and deferment plan. Chances are high that you might loss eligibility for any future federal student based aid.
Focusing on your very own debt consolidation:
You can only claim to be having an excellent credit with a score of 720 or more. During such instances, you have right to procure $10,000 personal loan, which comes with an interest rate within 6% to 10%. One major move around here is to get personal loan and use that same money for consolidating the debt.
- This move is proven smart for your personal finance as credit score is likely to improve a lot. Now, you will be using less of total credit amount as available.
- It has to be your credit utilization ratio, which is subject to make around 30% of credit score.
- The amount is calculated by dividing credit amount you have already used, by the total amount as available under the kitty.
Well, if you can get hands on debt consolidation loan from or other center, for an amount of $10,000 and can use $5500 from the lot to pay off the other balances, your credit utilization ratio might drop to 23%. It will help your credit score to get a significant boost.
Now for the debt management:
Another easy way to consolidate debt is by presenting a debt management plan. It is where you get to pay unsecured debts, mostly the credit card ones, in full and within a reduced interest rate with late fees waived. At this time, you can make single payment every month to that credit counseling firm. It is then time for the counseling firms to distribute the said money among creditors you have worked with.
- Well, there is a downside of this source of management plan too. It can prove to be a problem in personal finance as the credit card accounts will remain closed. It means you have to live your life without using credit cards unless you are able to complete debt management plan.
- But, just like cons, there are some pros to debt management plan as well. This kind of management plan will not quite affect the credit even when closing the accounts might hurt the score a bit.
Catch up with debt settlement:
Debt settlement is that procedure, where you get to contact creditors to provide some hefty payments for less than balance, just for settling the debts. If it is possible to cover debt settlement on your own, you can do it. Otherwise, it is always preferable to turn towards professional debt settlement firms.
- If you end up selecting debt settlement as the option, you will surely stop paying creditors and will make monthly payment to the settlement agencies in its place.
- After accumulating enough money for settling debt, the company will then contact you and ask for your permission to use the said money for settling the debt.
- This process is a continual one unless it has successfully settled all debts, which might take around 24 to 48 months typically.
Depending on your requirements, you are asked to choose the best way to stack up personal finance.