Too many Americans are struggling with having excessive debt. For many, debt is the only way they can get through a financial emergency. Unfortunately, this only adds to an already difficult financial situation. Understanding debt and borrowing will help you make better borrowing decisions and eliminating unnecessary debt.
Debt: something, typically money, that is owed or due.
Two things you can do with debt
- Pay it
- Forgive it, if you’re the lender
The responsibility to repay is always on the borrower (attitude)
- After borrowing some may feel like they got a bad deal - interest too high, late fees, over the limit fees.
- Some use it as an excuse to not repay, pay late, or try to negotiate a lower payoff.
- Understand the risk and try to avoid using credit in the future when you're unsure if you can pay it back.
Secured vs Unsecured Debt
Secured by an asset
- Credit Cards.
- Medical Bills.
- Utility Bills.
- Cell Phone Service, Cable, Internet Bills.
- These typically have higher interest rates because the lender has less leverage.
- Always have a sure way to pay.
- Asset stands for the value of the debt.
- A savings account that has enough to cover the debt.
- A detailed budget that has margin in it to cover payments.
- Consider the potential of a job loss.
- A 3-6 month emergency fund is super helpful.
- Can be a benefit if used wisely.
- Allows you to purchase something you may otherwise not be able to.
- Start a business.
- Limit risk by always putting a 20% or more down payment.
Only borrow for appreciating not depreciating assets
- Rental Property
3 Way to Get Out of Debt
1. Debt consolidation
- Lower interest rates.
- One payment instead of many.
- 3 to 5-year max time to pay off debts.
- Must fit into your budget - a financial interview is required.
2. Debt negotiation
- Negotiate your balance down to 50% or less than originally borrowed.
- The company gets between you and the creditors (cease and decease letter).
- Can’t protect you from being sued by your creditors.
- A creditor may seek a judgment to avoid the statute of limitation.
- Able to go after the debt anytime in the future - freeze accounts and garnish wages.
3. Best and cheapest option - do it yourself!
- Don’t give your problem to someone else to fix or you’re destined to repeat it.
- Debt snowball repayment strategy.
- Use form and how-to video @ leosabo.com/resources
- Not all borrowing is bad.
- Avoid borrowing for depreciating assets.
- Use wisdom whenever borrowing.