Friday, January 17, 2014

Reasons Why You Need To Avoid Bankruptcy

Bankruptcy, although it is a legal and effective way to get out of debt, should always be your last option. It will leave your finances with so much credit damage that it is sometimes not worth it - especially when you have another option that can help with your credit situation.

There are many reasons why you need to avoid bankruptcy even if you have the debt relief qualifications to file a petition. Here are some of them.

  • It can ruin your credit score. First and probably the most important reasons to stay out of this debt solution is the fact that it can lower your credit score by an average of 200 points. It will be really bad for the next couple of months. While you can improve your credit ranking slowly but surely, the taint of bankruptcy will stay with you for the next 7 to 10 years. That can keep you from some important financial opportunities in the future.
  • It will be difficult to get credit approval. When you file for bankruptcy, lenders will stay away from you - at least for the next two years. If you need to get a personal loan to help with an emergency situation, you will find a hard time to find someone to lend you money. Bankruptcy tells them that you are not responsible with your money. Even if you filed because of a sickness or something that was beyond your control, financial irresponsibility will be the first thing they will associate with this credit record.
  • It will be in the public records. The thing about bankruptcy is it will be placed in the public records. Anyone can learn about this embarrassing financial situation in your life. This is one debt solution that will be very difficult to keep from the people around you.
  • It can cost you every asset that you have acquired. If you file for bankruptcy and you are qualified for Chapter 7, your assets will be liquidated. That means, they will be taken from you, sold and the proceeds with go to your creditors. While you will not pay them anything because what is not paid with your assets will be discharged, you will have nothing left to your name.
  • It can still make you go through a repayment plan. Another reason why you want to avoid bankruptcy is because if you end up with a Chapter 13 filing, you will still go through a repayment plan. You will be left with a ruined credit score, have a hard time getting financial aid and will have it displayed in public records, and still pay your creditors a portion of your debt.

If you want to avoid bankruptcy, you have the option to go for debt settlement - especially when you think that you will be qualified to file for Chapter 13. Settling your debt will result in debt reduction - at least, if you do it correctly. Find out about your options before you finalize your decision to declare yourself bankrupt. You might find it to be more fulfilling to get out of debt without ruining your credit too much.

Friday, January 10, 2014

How To Choose Between The Snowball Method And The Avalanche Method

There are many options to get out of debt. You have debt consolidation loans, debt management, credit counseling and debt settlement. When things are really very bleak, you also have the option to file for bankruptcy.

But these options will either damage your credit score and/or require you to hire a debt professional. If you want to keep yourself from both of these, you should try opting for either the snowball or the avalanche method.

These two generally have the same process. Both of them will require the consumer to list their debts according to priority. This ranking will allow the consumer to focus on one debt (the priority) while taking care of the minimum payment for the rest. The idea is to get your debt payment fund (the highest that you can allocate without compromising your basic needs) and distribute it in your list based on the minimum requirement of each account. Once you have done that, the extra amount that is left in your fund will be put into your priority debt. That will help you pay off that first debt a lot faster while keeping the other creditors generally happy. When that first debt is done, you will get the amount initially allocated to the first debt and put it towards the second debt on your list. It will be a lot bigger since you combined the first and second debt payments. It should complete the second debt payments a lot faster. When this is is completed, you will proceed to the third - and so on and so forth. You will repeat the process until all the debts are paid off.

The difference between the snowball and avalanche is what will be the priority. In the snowball method, the priority will be the credit account with the lowest balance. For the avalanche method, the priority will be the debt with the highest interest rate.

So how will you choose between the two to maximize the efficiency of the debt solution?

It all depends on your personality. If you think that you need the emotional motivation of an early success, you should go for the snowball method. By prioritizing the lowest balance account, you will pay that off a lot faster.

But if you are the type who is more concerned about the money that you will save, you may want to go for the avalanche method. Paying off the high interest debt first will help lower the money that will be wasted on the interest amount. It could take you longer to get that first debt payment completion but it should be worth it.

These are the major issues that you have to consider when choosing between the two. It is important that you commit to the debt payment plan that you have chosen to ensure your road towards debt freedom.

And once you have achieved debt freedom, make sure that you will stay out of debt. Practice the right financial management skills that will keep you from incurring unnecessary debts in the future.

Friday, January 3, 2014

Reasons Why Saving After Debt Relief Is Still Important

Isn’t it a good feeling to give your last payment to your creditor? Now you are finally debt free. Does that mean you can stop restricting yourself? Maybe. It really depends on the status of your finances after the last debt payment had been made.

After your debt relief program, it is very tempting to go out and celebrate. You want to reward yourself by buying the things that you deprived yourself while allotting your money for your credit obligations. While you deserve to celebrate, you need to remember that you cannot go back to your old excessive life. Obviously, there was something wrong with that lifestyle - that is why you had so much debt to your name.

So what should you do after your debt relief program? Easy, you continue with your budget and you should seriously look into saving your money. Instead of splurging and cutting yourself some slack, you have to wise up and put a significant amount of your money into your savings. If that means continuing to live frugally, then that is what you have to live with - at least for a little while longer.

Your savings will help you achieve financial security. You want to make sure that your future will never have to deal with unnecessary debt again. You want to be able to enjoy your life in the future - especially after retirement. If that means you have to skip the romantic dinner in a fancy restaurant for one that you can do at home, then that is what you should do. If that means brown bagging your dinner leftovers to work the next day, then by all means, do that to save more money.

Debt freedom is great but you have to know that the real peace of mind comes with financial security. It is a much better life to lead. Knowing that any financial crisis can occur and you will still be okay is enough to give you a stress free life.

Not only that, saving will help you reach a lot of financial goals. For instance, if you plan on buying a home, you can save up for the down payment so you do not have to apply for a big mortgage. A smaller mortgage means you can pay off the debt faster and you don’t have to worry about too much interest amount.

Another financial goal that you can finance through your savings is your retirement plan. You want to start saving up for your twilight years so you can live comfortably and lead a lifestyle that you have chosen for yourself. Make sure that you think about how much you need to retire and start putting aside money for it. The earlier you start, the better it will be for you.

Other financial goals include your child’s college fund or the capital for the business that you have always wanted to have. A lot financial dreams can be achieved if you only have the finances to fund them. Well now that you are debt free, you can start working on your other life goals.