Debts are not the same. There is an opinion that there are “good” and “bad” borrowings, but it is not the case. Experts use another, more profound division and offer appropriate options for overcoming the current conditions.
Types of Debts
How “good” one or another borrowing depends on the specific financial situation, and it is not entirely correct to divide debts according to this principle. Professional debt relief services like DebtStoppers distinguish two types:
- Secured debt. These include those that have so-called collateral. For example, by taking a loan to buy a car, you agree that in case of non-payment, it can be taken away from you. The vehicle is the collateral. As a rule, such loans have lenient conditions and a relatively low-interest rate.
- Unsecured debt. These are borrowings that are not backed by any assets. Lenders and borrowers conclude an agreement, based on which you can be sued in case of non-payment. To hedge against potential complications, creditors charge higher rates for these loans.
Sometimes experts also classify revolving debt (for example, on a credit card) and mortgages in separate categories since they are most common among consumers.
Get Rid of Debts On Your Own
If your financial situation is not critical, you may well try to deal with debt on your own:
- Make a budget. Be clear about how much and for what purposes you can spend and what amount you need to save, and stick to that plan.
- Take control of your expenses. Avoid impulse purchases and find cheaper options whenever possible. For example, you can save money by skipping lunch at a cafe and taking food and coffee from home.
- Sell unnecessary things. You can get quick money if you sell clothes, furniture, and household appliances that you do not use. Perhaps the amount earned in this way will be enough to cover a significant part of the debt.
- Talk to creditors. If you have a difficult financial situation, you can agree with lenders to create a softer payment plan on your own.
Ask Pros for Help
When conditions are not in the best way for you, it is better to seek professional help. Depending on your individual scenario, specialists will be able to suggest a suitable course of action for you:
- Debt settlement. The agency dealing with your debts negotiates with creditors to forgive some part of the debt.
- Debt management. As part of this strategy, lenders can create a new, more lenient payment plan that is easier for you to stick to.
- Debt consolidation combines all your debts into one payment, allowing you to save on interest in the future.
- Bankruptcy allows you to partially or completely get rid of debt, depending on the Chapter you choose.
Keep in mind that any of these plans can affect your credit score to varying degrees. That is why you should competently approach the choice of a financial burden relief strategy.
Take Control of Your Finances
Debt is not a sentence, and even in a difficult situation, you can find a way out. You can try handling it yourself or ask the experts in the field for help. Either way, sitting still and hoping that things work out by themselves would be the worst decision.