Debt is no less than a curse.
The sole motto of all people, who’ve incurred a debt should be repaying it as soon as they can. The biggest problem that comes with debt is the interest, which keeps accruing. In this article, I’ll discuss some of the surefire ways to avoid debt.
Difficult to pay down
That’s right. It’s 2015 and the nature of debt has changed. Earlier, debt was synonymous with taking a loan and was completely an individual’s decision. But due to the overuse of credit and debit cards, debt has become all too common. As a matter of fact, private sources claim every US citizen owes a debt of $41000, which means a family of four has a debt of $164000.
The national debt exceeded $18 trillion in the second quarter of this year. Needless to say, it’s very difficult (if not impossible) to pay down this gigantic amount of debt. For a start, promise yourself that you won’t incur any more debt in the future, and gradually pay off all the debt you have currently.
It’s possible through the following ways:
Cash out refinance
It allows you to refinance your mortgage for more than the amount you owe. What’s the benefit? You can use the gap to pay off other debt (if any). Very simply put, cash out refinance enables you to borrow a larger sum of money as a new mortgage loan when you already have a mortgage loan. You get the difference between the old and the new loan in the form of cash. You can use that cash to pay down other debts.
However, after the speculation that Federal Reserve will increase interest rates, the mortgage rates have gone up, making the whole scenario unsuitable for cash out refinancing. The best time for it is when the mortgage rates are low.
More than the minimum
One of the reasons people carry the burden of debt for a long time is they only pay the minimum amount, not the whole amount. This happens mostly for credit card debt. What many people don’t know is paying only the minimum payment has its downsides. The vicious cycle of debt-interest-debt can only be stopped if you make it a habit to pay down considerably more the minimum.
The truth is banks don’t want you to pay down all your debt at once. That’s why the credit card bill statement assures you every month by highlighting the minimum amount. Don’t fall into this trap.
Observe your credit
Your credit score determines the rates on loans taken or applied by you. An excellent credit score implies interest rates on loans applied by you would be decent. A bad credit score, on the other hand, implicates getting a loan would be difficult for you in the future.
The problem is mistakes by credit report agencies can reduce your credit score, resulting in a high interest rates on loans taken by you. So monitor your credit score time to time to make sure your credits are fine.
Lower interest loans
It won’t pay down your existing debt, but it’ll surely stop the accumulation of new debt. The amount of money involved in peer to peer lending is quite less. Since the lenders work on a local basis, there’s always a competition between them, and as a result, the interest rates go down.
So if you need some quick cash, peer to peer lending networks are not a bad idea. Just check the interest rate before taking a loan, if it’s at least 10% less than a bank loan, feel free to go ahead.
Credit card interest rate
Even though credit cards are responsible for the circulation of debt, we still use them. One way to lower the debt is negotiating a reduced interest rate. Credit card interest rates are not fixed, you can negotiate the rate if some factors go in favor of you. Such factors include how long you’ve been a customer of the bank that issued you the card, your relationship with the bank, etc.
Talk to the bank representative today and ask him what your options are as a customer. I am sure he’ll help you. Don’t have unrealistic expectations, though. Even if the bank agrees to lower the interest rate, it wouldn’t be as low as half the current interest rate.
It’s a priority
That’s right. You can never take a breath of relief unless you pay down all the debt. So make it your utmost priority to clear the debt, and do that as soon as you could.
What do you think of the tips given here to avoid debt? Do you have any tip of your own? Let us know by posting a comment below.