http://www.theresourcehub.com/understanding-debt.html
- Understanding the basic concepts of debt
Budgeting is an important aspect of living and a person who knows how to budget will go a long way in this commercialized society. Budgeting has a lot to do with keeping the expenses less than the total income of the household. Those who are very good at budgeting can come up with savings even if they have meager incomes.
The problem sets in when a person fails to make an efficient financial plan and his expenses exceed his earnings. When this happens, a person has no choice but to borrow money to make up for his financial deficiencies. Borrowing once or twice because of a mismanaged financial plan is normal but when borrowing becomes a regular thing that can put a person in serious debt problems.
A person who borrows money from another is said to be in debt. The debts of a person can be minimal or can reach up to millions depending on the credit limits of each person. Sometimes, a person who has assets but isn’t liquid can use these assets to get cash. Under this term, the person can be indebted for an amount less or more than his assets.
There are laws that provide that a person can never be forced to render services as payment for his debts. This is called undue servitude and is prohibited by the laws of some countries. However, there are situations when the person who is in debt opts to settle his obligation by rendering his services.
This can happen if a person is so talented in his craft like painting and he opts to pay for his debts by creating a painting of the creditor or the assignee of the creditor. Sometimes, a person can pay his debts gradually or on an installment basis.
When a person dies, the law has provided for a hierarchy of preferences in the payment of such debts. Of course, payment of taxes to the government will always come first. The second priority for debt payments includes funeral expenses of the deceased and the payment for the wages of people.
Debt is really just a simple concept, which provides that a person who borrowed something from another is duty bound to pay that debt. However, the concept of debt becomes more complicated with the introduction of other concepts like mortgage, interest rates and other charges. Interest makes most debts double or even triple in amount. More often, the interest rates due for a certain debt is even higher than the principal amount borrowed.
A person who wants to get credit can do so in the form of a loan. A loan can either be secured to unsecured. A secured loan means the debtor borrowed some money and supported the loan by collateral or a security for the loan. The security or collateral can come in the form of a house and lot, a car or any asset of the debtor. An unsecured loan means otherwise.
Most creditors require a security before granting a loan because it gives them something to hold on to or to forfeit in case the debtor defaults in payment. When the debtor fails to pay the debt within the agreed timeframe then the creditor can foreclose the security or the collateral.
However, having an unsecured loan doesn’t mean that the debtor can renege on his debts. When the debtor fails to pay his loans, the creditor can still run after him by filing a case in court. When this happens, the debtor who has no cash can sell some of his assets to pay for his outstanding loan.
Being in debt is common even for the rich and the famous; the only difference between them and the common people is that their debts can be in the millions since they have more assets to support their loan. Unsecured loans most often have higher interest rates to make up for the lack of security.
Even third world countries are indebted to more developed countries. However, the debts of a country can go on forever because they keep on paying their loan but they also get new credits as their credit ratings go up.
http://www.theresourcehub.com/your-debt-explored.html
- How to take charge of your debts
The rising cost of living and dying has made people more reliant on loans and credit. Most people have been indebted to someone at some point in their lives. A debt is an obligation that should be paid and accounted for no matter how meager the amount. Being in debt is normal considering that no one has a monopoly of all the money in the world. People will always have the tendency to accumulate debts no matter how rich. In fact, rich people have more debts than poor people because they have more needs and they have more collateral or security.
Being indebted isn’t something that you should be ashamed of provided you are a responsible debtor. This means the money was used for a very good cause or purpose and the debtor is religious in looking after his responsibility to pay his debts. Even a person who is savvy is financial management can get into debt for one reason or another. However, a person who is good in managing his finances should also be good in managing his debts. Managing debts would include the ability to know how much a person owes and from where he would get the money to pay such debts.
The ability to know the total indebtedness is a must in debt management because the person who is in debt is aware of the total amount he has to produce to pay off his debts. There are people who don’t practice good debt management and they keep borrowing money without being able to monitor how much they already owe individuals or financial institutions.
Debt management means that at the time the loan was made, the borrower knows where he would source the payment for such debt. This makes the debt manageable because it would appear that the person has some source of income and he is just not liquid at the time he borrowed the money.
People who don’t have a steady source of income should be discouraged from borrowing because there is a tendency for their debts to pile up without being paid at all. Unemployed people who resort to borrowing for their essential expenses like food and daily subsistence may borrow from another creditor to pay off a debt that is already due and demandable. The same thing happens to the second and the next loans after which it becomes a vicious cycle.
A person who is indebted to someone should take an inventory of his assets that can be used to pay off his debts. There is no problem if the debtor is looking at a possible income that hasn’t yet been paid. Such unpaid income can be considered an asset that can be used to pay his debts.
Debts are easily made but they are difficult to pay.
Thus, every person should be careful when borrowing money from others. Make sure that you have something to pay for the debt like an incoming income or check, or assets that can be sold to pay off the debt.
Some people get indebted by virtue of loans that have varying interest rates. This means that aside from the principal amount borrowed, the debtors still have to pay for the interest rate. A person who borrowed $100 at ten percent interest rate per month will have to pay the principal plus the interest rate of $10 per month. Some interest rates are based on the actual balance like if the debtor has already paid $20 then the interest rates would only be pegged on the balance of $80. However, there are some interest rates pegged at the original amount borrowed.
While being in debt is prevalent, every person should learn how to manage his debt and how to stay out of debt if possible. One of the major factors why most Americans are indebted today is the misuse of credit cards.
Credit cards are those plastic cards that can be used to pay for almost any purchase even if you don’t have cash. People find it easier to spend when using their cards because they just swipe it and voila; it works like a genie granting their every wish!
However, most people who fail to use their credit cards wisely become indebted and are faced with legal actions for failing to pay their cards when they become due and demandable.
Go ahead, borrow if you must but always take charge of your debts to make sure they don’t lead you to declaring insolvency or bankruptcy.
http://www.theresourcehub.com/debt-counseling.html
- Debt Counseling – What It Can Do for You
- Statistical reports show that nearly 80% of consumer expenses in the United States are on credit and the most convenient way to shop is to use plastic, or more popularly known as credit cards. Moreover, the average debt is more than $8,000 with a typical interest rate of 18.9%. No wonder so many people are now heavily buried in debt. Along with it came lots of debt relief programs aiming to provide consumers effective ways out of debt.
Among the many debt relief programs available today, debt counseling is one of the most well liked programs, helping more than the average consumers who seek debt consolidations. Debt counseling is one way of teaching consumers how to administer their profits and expenditures. This program will also teach them how to avoid further accumulation of debts.
In essence, debt counseling should have been a preventive measure for accumulating debt, but the problem is that most people use this after they have already mounted lots of debts.With debt counseling, you can learn the different ways on how to avoid debts. The main focus of debt counseling is to educate the consumer regarding their expenses, balances and the credit score.
All of these things will put a great impact on the interest rates as well as the types of loans one can pursue. It is important for every consumer to seek debt counseling before they start charging their expenses.
Here is a list of things that your debt counselor can do for you:
- 1. Debt counselors can teach you the whole credit card process
One of the greatest problems why many people accumulate debts more than what they can afford to pay is that they aren’t aware of the actual operation of their credit cards.
According to surveys, almost 75% of credit card holders aren’t aware of their balances, not even the amount they are paying off monthly.
How is that? This happens when consumers only try to pay the minimum required balance stated on their credit card bill. They are only prolonging the process and accumulating bigger debts through interest rates.
The point here is that paying the minimum balance on your credit card won’t get you any farther. It may lessen your actual balance but may only aggravate the situation because of the time it will take you to finish everything off.
With debt counseling, you are made aware of your payments and on how you should go about your balances so as not to accumulate more debt.
2. Money management is the ultimate tool that they can teach you
Debt counselors can give you complete details on money management. Here, consumers are taught how to manage their expenses and their credit card bills.
Debt counseling programs will teach you how to be aware of your credit card billing statements every month. In this way, you become conscious of your expenses and your available credit limit. The key is not to exceed your credit limit so as not to accumulate debts.
The problem with most consumers who are heavily buried in debt is that they are not aware of their monthly expenditures, thus, tending to cross over the specified credit limit.
Keep in mind that credit limits will most likely keep you in track. Once you have gone overboard, chances are you will find it hard to pay off your balances.
3. They will teach you how to use cash instead of plastic
Since the emergence of credit cards, consumers tend to neglect the real functions of credit cards. They don’t understand that credit cards aren’t extensions of their profits. Any amount used on credit cards is still payable.
So if you have been charging more than what you can pay in a month, you will definitely accumulate more debt.
Moreover, debt counseling will teach you not to use your credit cards when paying for your basic necessities like gasoline and groceries. These items are so basic that you should have included them in your monthly budget.
By any chance, acquiring them on credit will only entice you to get more than what your budget allows.
Indeed, debt counseling is a very effective way of managing debts. You should realize that debt counseling works better if they are used beforehand and not after the consumers have accumulated debt.
Debt counseling seems to be a big industry in the US, with people also concerned not just with payment of their loans but also with their credit standing.
Credit standing doesn't seem to hold importance to many Filipinos in debt crisis even those with credit card debts. But most would be bothered by the frequent hounding of their creditors! I have seen many run away from their credit card debts by changing offices and residences and people left to receive the collectors' frequent (oftentimes even threatening) calls and mails gets disrupted. Even if you are not a professional debt counselor, it would be a good thing to give advice to people with heavy debts to help them rise above their problems.
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