Financial difficulties tend to shove people down into debt traps. Many credit consumers today can attest to this fact. After all, the most recent economic slump pushed a lot of individuals out of their jobs and made them incur huge financial obligations. As a result, thousands had to file for bankruptcy just to attain relief from their outstanding debts.
But, apart from bankruptcy, what other options can consumers take advantage of to avoid inflicting long-term damage to their credit history? Let’s find out.
Restructure your budget.
At the first sign of a crisis, you should make the necessary changes with your budget right away. Thus, unnecessary expenses can be avoided so you can free up your finances and make way for the more important expenses.
For example, if you were previously subscribed to an expensive internet or cable plan you may consider switching to a lower package to cut down your monthly bill. Perhaps you can eliminate magazine subscriptions from your list of expenses and instead use the money to contribute to debt repayment.
If you can restructure your monthly budget plan early before the real crisis begins, you will be minimizing the damage to your personal finance and credit.
Watch out for payday loans.
Some people turn to payday loan lenders to cover for an emergency or to get pass a difficult phase. Nevertheless, there is a danger to this course of action since payday loans are known to carry steep rates and fees.
It’s important to remember that when you take out a payday loan, you are expected to return the full amount by your next paycheck. If you fail to do so, you will incur high interest rates which can put you in an even worse situation. Hence, before thinking about acquiring a payday loan, you may want to consider other options first.
Don’t take cash from your credit card.
Cardholders today have the option to take out a cash advance using their credit. While this might seem to be a convenient solution, keep in mind that cash advances are automatically charged with interest rate. Even worse, the APR applied on cash advance transactions is usually much higher than the rate applies on new purchases and balance transfers. For a cash-strapped consumer, paying that extra rate can be costly.
Don’t hide from your creditors.
If you are having a hard time catching up with your bills, the worst thing that you can do is to hide from your creditors. When a creditor calls you about repayment, it is crucial that you speak about the problem and inform your creditor about your financial situation.
Most creditors are willing to modify their terms to help a customer in need but you need to be honest and take the initiative to negotiate. You can request for an extension of your due date or a reduced rate to make repayment less of a burden. When a creditor knows what’s going on, you are more likely to be given consideration.