Rain.. Rain..Wash Away My Bad Debt

We have all been told at some time to save out money for a rainy day. It is much easier said than done. Life is expensive, keeping up with mortgage payments, car payments and credit card debt is all consuming. If you are lucky you may have a few pennies left to treat yourself to a dinner out. Often people find themselves in the tricky position of not even being able to find the cash to make their minimum repayments. This is the rainy day you were warned about.

Debt: The Good and the Bad

There is bad debt and there is good debt. In essence, any debt you can't afford to make the payments on is bad. It is important to note the distinction between an asset and a liability. An asset will appreciate in value, the prime example being property. As you pay it off its value will climb, you may even be able to collect rent. Borrowing to invest in shares is another example of good debt. Bad debt is exactly the opposite. Its money you have borrowed that is a liability, it declines in value, if it has any value at all. Credit card debt usually falls into this category as do car loans. You don't need to necessarily get rid of all of your liabilities, but if you would like to minimise risk to yourself financially, you need to minimise these liabilities. Get your debt in order, whether it is good or bad. Make a list of all you owe. Take some time out to set out a budget. Exactly how much are you paying? What is interest and what is principle? If you are having trouble you may like to consult with a financial advisor. Being in control of your finances is a great feeling, no matter how much you owe. If you are exceeding your expenses have a look at your options. Are you able to reduce your expenses? Can you get a second job to help pay your debt quicker? If your debt is with a collection agency you may be able to negotiate an amount. Bad debt consolidation may also be a good option.

Credit in Decline

Bad debt can lead to bad credit. Of course, so can good debt, but this is a much easier situation to resolve as you can usually sell the asset before you face serious consequences such as bankruptcy. If you make a payment more than thirty days late this will cause your credit rating to decline. The worse the offence, so to speak, the faster your credit rating will plummet. The lower your credit rating is, the harder it will be to get loans in the future. If you are looking at buying a home anytime soon you will want to resolve this as soon as possible.

The 'Rainy Day' you DID NOT Save for...

Need some debt help? Want to wash away your bad debt? Start by making a list of all the debts you owe that you believe are appearing on your credit history. You are going to need to contact each company that you owe money to. Some may have on sold your debt to other companies, this is quite common. Start with the largest debt and make your way down to the smallest. Many will be willing to negotiate the debt owing, chasing you is much more expensive that just reducing the debt. Make an agreement and ask for a copy in writing. It may take some time to save up the money to pay all you owe off but it well worth it. After the debt is paid it should be removed from your credit record. This can also take time - so be patient! Another form of debt help is a bad debt consolidation loan. Basically this is a personal loan which gives you the money you need to pay off your debt. The interest rate is lower than that of credit cards so you will save money and also pay your debt faster. If you already have bad credit you will likely need to offer some kind of collateral such as property for the bad debt consolidation loan to be secured against. This of course minimises the risk to the lender. Also if you are able to offer some kind of security, you will be able to negotiate a much cheaper interest rate. Once the loan has been approved you can either pay off the debts as described earlier or enlist the help of a bad debt consolidation management company. This company will apply for a loan on your behalf and they negotiate with each of the debtors. This seems like an easier option, but there are of course fees for service involved.

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