debt relief

8 Danger Signals to foretell you are on the debt road

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Debt consolidation is a major concern throughout the world. There are many things that one needs to watch for to avoid this malady and this stands true for all types of people. The article will try to highlight a few danger signals which can foretell that you are on the debt road – so you can recognize them and straighten things out.

Danger signal 1
Your credit card expenses increase while your income is the same or decreasing. When this happens stop using your cards and manage on whatever cash you have available. Stop when the cash is finished unless there is a great emergency – do not take out the cards. Diminishing income will suffer greatly if the bills of the credit card are added to it; get away from card shopping till your income stabilizes.

Danger signal 2
You are unable to pay more than your minimum balance on the card debts; this is when it should be obvious that cash problem has started; this is the time when you should leave the credit cards and try to pay off all your outstanding by wise financial management.

Danger signal 3
You find yourself borrowing on one card to pay on another. This is the message that you are entering unmanageable debt – so take charge and control all unnecessary expenses right away. Try to pay off the debt of one card and use only one card – that also only in acute emergency.

Danger signal 4
You observe that you have more than 5-6 credit cards. Ideally, you should not have or use more than two credit cards. There are many who advocate the use of only one card while – if you have more – you can keep the rest locked for any emergency. When you have too many operational cards, you can very easily over spend and find yourself in a financial mess.

Danger signal 5
You are finding that you are using your credit more and more for emergency payments – and the emergency payments include grocery bills. The moment you include in the emergency payment list ordinary purchases, you should understand that something is seriously.

Danger signal 6
Your credit card payments keep you working overtime – if you observe that you do not have sufficient funds to cover your credit card payments – that means you are extending your income to your credit card limits – this is a definitely a danger signal.

Danger signal 7
You are at limit of all your credit cards. When you find yourself to have topped the limits of your credit cards –this obviously shows you that your income is not sufficient to take care of your expenses – and or you are spending too much.

Danger signal 8
You are gambling and paying the debts with the credit cards. Never ever pay your gambling debts with the credit cards because this will really create an egg-and-chicken vicious circle from where you will never get out.

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Getting Insurance

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Most people are only one major disaster or a few weeks of unemployment away from bankruptcy. If you have done all this work to get out of debt, you don’t want it to all be in vain, just by one major crisis hitting you or your family. There’s nothing you can do to totally protect yourself from every type of catastrophe, but there are steps you can take to significantly reduce your risk.

The first half of this article is going to be on insurance, and we’ll start with the type of insurance that is most likely to save you from being completely wiped out, medical insurance. This is one a lot of people choose not to buy because it’s quite often very expensive. This is a very dangerous decision, though.

You never know when you will need medical care and we all know it isn’t cheap. Even if you are in perfect health, medical conditions can pop-up over night. You could wake up tomorrow and either have a major internal problem show up, or possibly have an accident and break a bone. You can easily rack up bills in the thousands, ten thousands or even hundreds of thousands from a single incident, and you never know when one will strike. Once this incident occurs, it’s usually too late to get insurance.

If medical insurance is available through your employer this is usually the cheapest option, however you can still get insurance if your employer doesn’t offer it. The next cheapest option is most likely to get a group plan from another organization you belong to. Some examples would be a credit union or NASE. If you can’t find a group program, you can still buy insurance as an individual, it just typically costs more. The best way to reduce the cost is to go with a plan that has a high deductible. You may end up paying $2000 or so if you have a major incident, however it won’t completely wipe you out.

If you own a home, you most likely have homeowners insurance because your mortgage company has required it, but if not, be sure to get it. If you rent, you may think you don’t need insurance on your property, however if a disaster was to hit the apartment complex or other place you live, you can still lose all of your possessions. You may think the apartment’s insurance will cover your losses, but it won’t; you will need renter’s insurance. This is usually fairly affordable. If you own a car, you are required in most states to at least have liability insurance, but depending on the value of your car and whether or not you can afford to replace it if you were in a wreck, you may also want full coverage to cover any damage to your vehicle.

The last type of insurance I would like to mention is life insurance. This is something many people overlook, especially younger couples. If you are single and are not responsible for supporting anyone you may not need this insurance, but if you are married and have children or anyone else you are responsible for caring for, this is something you are going to want to have.

To determine how much insurance you need, I suggest calculating how much your family would need to get by with you gone and multiplying that by fifteen. This will most likely be a shockingly high number, but it will allow you to support your family indefinitely by allowing them to live off the interest from this money rather than the principal. You’ll learn more about this in the next article.

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Reducing Your Interest

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If you have read the previous articles, so far you have learned how wide spread of a problem debt is, the true impact it can have on your life, and how to determine exactly how much debt you have and how much it will actually cost you. The next step is to attempt to reduce your interest rate. There are several ways you can accomplish this.

We’ll start by looking at what are typically known as the highest-interest debt, credit cards. Believe it or not, one of the easiest ways to do this is to simply call your credit card issuer and ask them to reduce your rate. This sounds laughable at first, but quite often it actually works. Credit card issuers typically charge customers much higher interest rates for the money they loan than what they pay to borrow it from others. This leads to huge profit margins, which means they really want to keep you as a customer, especially if you regularly pay your bill on time. They know you have plenty of options available, and are likely to switch to another credit card issuer if you feel you can get a better deal, so they’re happy to make a slightly smaller profit and keep you as a customer by lowering your rate.

If that doesn’t work, a second option is to find a lower-rate credit card and roll your balance over to it. You may be tempted to go with a card that has a 0% introductory rate. This is probably not your best option though, unless you plan on paying off the card within six months. What you want to look for is a card with a low permanent rate. There are several sites available to where you can compare credit cards from multiple issuers such as Creditor Web, http://www.creditorweb.com/.

There are also several broader options available for credit cards and other types of debt. One of which is to look into refinancing any loans you have. Interest rates go up and down over time, and it’s quite possible the rate you can get now is lower than what it was at the time you originally financed the loans. Often there will be a refinancing fee involved, so use the amortization calculator from the previous article to make sure the amount you are going to save is greater than the amount you will have to pay.

You can also get a debt consolidation loan. You need to be careful when considering this option though, because although there are several legitimate companies offering debt consolidation loans, there are also several companies trying to make a quick buck at the expense of others. I highly recommend checking out any company you consider getting a loan through with the Better Business Bureau, especially if it’s not a reputable bank you are familiar with. In addition, once again use the amortization calculator to make sure you are actually saving money with the loan. Just because your monthly payments are lower doesn’t mean you’re saving money. $300 per month for 10 years is going to cost you more than $500 a month for 5 years.

The last option I want to suggest is for those of you who own a home. There are actually two options here, you can take out a second mortgage, or refinance your home for its current value and some additional funds, to pay off other debt. As with the one before, this can be both good and bad. It can be good because these loans typically offer the lowest interest rate because they are relatively safe loans for banks. That is also the same reason they are bad; if you do not pay them off, the bank can repossess your house. The other built-in benefit is by refinancing, you can often get a lower interest rate on your house, which can save you a bundle. As with the previous option, there’s often a refinancing fee, so use the amortization calculator, http://www.destroydebt.com/calculators/AmortizationCalculatorJs.aspx to make sure you are saving money by doing this.

With all of these methods let me stress that you should be very careful not to fall into the same trap many others have. Too often families will take out a second mortgage or debt consolidation loan to pay off their credit cards, but instead of using this is a means to reduce their debt, they charge up all the credit cards again and end up in a worse situation than they were before. Don’t let this happen to you. Once you have refinanced to eliminate any credit card debt, close those accounts. Just keep one open for emergency use only until you get to a later step in this guide where you can destroy that one, as well.

 

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