ATM :: How to know if you need help with your debt


By Rishi Mehra | 20 Jan, 2016, 10.17AM IST | Economic Times

ATM

It is common to have debt in some form or the other and it is not bad to have them. However, there may come a time when runaway debt may cause problems and you may need professional help. A look at some scenarios that can indicate you need help to tackle your debt.

Caught in minimum payments – This is especially true for credit cards. When your credit card is generated there are two payment terms in that statement. One would be total amount due, while the other is the minimum amount, which is about 1 % of the principal amount outstanding. Minimum amount, being a small percentage of the total amount due, largely consists of interest and fees. This would mean if a person pays only the minimum amount outstanding on the card every month, it would take him decades to pay the entire amount. If you find yourself caught in the trap of minimum payments, it may be time to get professional help to get out of the situation.

Over reliance on credit cards – Being caught in the minimum payment trap may not be the only indicator that your finances may be off track. When debt increases, servicing it may lead to over reliance on your credit card. Having to use the credit card for daily expenses may be proof that your finances are not in shape. However, paying by credit card because you chose to and not because you have cash crunch is okay. Similarly, if you are making payments by credit cards to earn points, rewards or cash back, it makes perfect sense. However, when you start feeling your cash drying up and having to resort to credit cards to fund your monthly need, it may be time to talk to a financial advisor to get your finances in order.

Getting a loan to tackle debt – Unless it’s a credit card debt, or the new loan has substantially lower interest rates, taking a loan to settle another loan defeats the purpose. This can be very counterproductive, especially in cases when you increase the tenure of the loan to ensure you pay lower EMIs. The very idea of taking a loan should be to reduce your debt at the earliest and most frugal manner. By increasing the tenure you may be making things easier for yourself, but the interest outgo will be much higher. You also run the risk of being under debt for a longer time. If you have any debt, your first priority should be to pay them off at the earliest. If you find yourself in a situation where you think you may need a loan to settle another loan, it is best you consult an expert first to get an opinion.

Little or no savings – When your entire income goes on servicing your debt and catering to your daily expenses, it may be time to get help. When you start your career you may not be able to save immediately, but as you progress in life, you should start having some form of saving. What products appeal and suit you can differ, but it is imperative to save money, especially for periods after retirement. However, if your savings are negligible or you have no products that help you save money, you may be in a tricky situation. Get help on what products will be ideal for you and start saving diligently. Failure to do so may be painful when you grow old or during an emergency.

Difficulty in drawing or sticking to a budget – To build some sort of order and responsibility between what you earn, what you spend and what you need to set aside to cater to your debt, it is important to draw up a monthly budget. This helps you come to grips with the regular expenses every month and the special ones that may creep in. This also helps you realize when you are overspending and the need to put money aside as savings. When you have difficulty in drawing a monthly budget or sticking to it despite having one, you may need to get help to figure out ways to correct your situation.

Consistently overshoot payment deadlines – This may be an early and a potentially important indicator to know if you are having problem with your finances. If you miss payment deadlines on your bills because you do not have the requisite money and have to wait for your next payday, things may be tight for you. Servicing your existing debt may be taking its toll and you should get help to see what can be done to address your financial situation.

(The author is co-founder of deal4loans.com)

Source : http://goo.gl/vehEzi

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