Overcoming the Most Common Types of Debt

Debt can strike at any moment. Due to how many different types of debt there are, it’s actually very easy and sometimes unavoidable to get caught up in problematic debt. The issue with it is that too much debt can be debilitating, and turn into a real strain on your finances once you start repaying it.

Ranging from student loan debt to mortgage repayments and even credit card debt, there are just so many opportunities to experience these issues. For people who may be struggling with debt and don’t quite know what to do to improve their situation, here’s a look at some of the most common types of debt, as well as some practical suggestions on what to do to help you overcome it and take better control of your financial situation before it gets out of hand.

Mortgage Debt

Mortgage debt is perhaps one of the most common forms of debt, simply because for most people, it’s a necessity for buying a home. It’s also one of the most common forms of debt to prompt consumer lawsuits. To ensure that you’re in the know about this issue, sure to check out news about consumer debt lawsuits regularly.

For those that aren’t aware, a mortgage is a loan taken out to buy either property or land and is usually provided by a bank, and usually has to be paid off with interest before an individual can sell this home.

With how important a mortgage is to get onto the property ladder, it means that millions of Americans are struggling with this cumbersome form of debt. If you’re struggling with paying back your mortgage, here are a few things you can do to help you pay it off, and become the sole owner of your home. 

Make extra mortgage payments

One of the best ways to quickly pay off your mortgage is to simply pay bigger monthly payments than you’re contracted to. This means that if you have some spare money left over from your budget each month, after paying your usual mortgage payment, then you can use this money to further chip away at the total sum.

This is an effective strategy but is only something you should do if you can properly afford it. The best way to figure this out is to create a budget. To do this, simply calculate all the essential expenses that you need to pay each month. An essential expense is basically all the stuff that you can’t get away without paying, such as your mortgage, bills, grocery shopping and fuel. You then need to subtract this from your monthly income to see how much disposable income you actually have. From this number, be sure to take away some funds for non-essential purchases so that you’re able to enjoy life and spend without feeling guilty, as well as save a little bit for the future. What you’re left with is the money you can use for extra payments.

Give up your endowment policy

If your mortgage is an endowment mortgage, it means that to help you generate a sum of money to pay your mortgage, you could consider giving up your endowment policy or sell it off to an investor. This could be a good idea, as the lump sum can seriously decrease the amount of mortgage you have to pay, making it more manageable, but you need to be careful with this.

This is because when doing this you need to find another way to pay off your mortgage loan, and you will also need to find alternative life insurance cover. There could also be penalties and fees related to ending your endowment, which could cut away at the lump sum you receive, making it a less effective strategy. To find out more about this and work out if it really is a good solution to your situation, be sure to get independent financial advice from experts.

Credit Card Debt

Credit cards are hard to avoid in modern life, simply because in order to be able to get things such as a mortgage or good insurance, you’re going to need a good credit score, which entails responsibly managing credit and is commonly built up through transactions on a credit card. The issue here is that credit cards are basically your bank lending you money, and whatever you spend has to be paid back at the end of the month. This means that many people are inclined to buy things that they can’t afford in the spur of the moment on their credit card, and then just save up to be able to afford to pay the credit card bill at the end of the month. This can be extremely risky, as many people simply forget what they owe, resulting in credit card debt. Another trap is to only pay the minimum payment of the credit card bill, which results in a high interest rate being applied to the outstanding amount.

Here are a few things that can be done to help people deal with credit card debt, which should make it more manageable to control and eventually pay off.

0% balance transfer cards

Balance transfer cards are a good option to go with if you need to freeze the interest on your debt to make it easier to pay. These cards work by allowing you to transfer existing debt from one card to another card at 0% interest rate for a set period. This makes it easier to pay off the debt as it won’t be increasing at a high rate of interest every month.

The potential issue here is that once the interest-free period for these cards expires, the interest will rise massively, often to something way higher than what you were paying initially. This means that it’s essential that you make sure that you can pay off all the credit card in this initial period, otherwise you could be creating an even worse financial situation for yourself. You should also never use these cards to make any new purchases, as they should solely be used as a place to store debt and pay it off.

Getting one of these cards is far better than getting a loan as they offer greater flexibility in terms of how you pay it off. Most cards have a minimum monthly repayment that you have to hit otherwise the 0% interest is void, however, you can pay whatever you want beyond that, which isn’t the case for a loan.

Snowball Strategy

The snowball strategy applies to pretty much every debt you need to repay but works really well for card repayments, too. The premise is very simple and easy to implement and is a strategy that gets more rewarding the longer you do it. First, you need to organize all the debts you want to repay and rank them in terms of importance. For personal cards, this usually means that the one with the highest interest rate should be your priority.

You then pay off your monthly repayments as normal, however, you also make extra payments to the single card or debt that ranks highest on your priority list, adding any extra money your budget will allow. This will mean that you’ll pay off this one card a lot faster compared to the others. Once it’s all paid off, you’re then able do the same with the next most pressing debt, however, with one debt cleared, you’re now able to add the money you were paying on the first debt to this next one, increasing the amount you pay, making the second one decrease even faster. This continues after each debt is cleared, with the extra money you’re paying rising and rising with the financial burden on you staying the same. This is a great and rewarding way to pay off a credit card loan or any other debt.

Business Debt

Most businesses have debt, usually acquired due to them needing a loan or some kind of funding to start out and get off the ground, or to expand. Most of the time this debt isn’t much of an issue, however, if it gets out of hand it can start negatively affecting the company’s cashflow and profit, which can be a serious concern for business owners. There are many ways for a business to deal with debt and make it less of a hassle – the best antidote is to maximize cash flow. This can be done by simply getting customers to buy more of your products, and effective ways to encourage them to do so includes offering discounts and running a sales campaign, which can be especially useful if you have a lot of stock that you need to shift.

Furthermore, another way to increase cashflow is to make your business more productive and efficient. This means that spending time training staff and investing in systems to make them work faster can increase your output and help you generate more money.

Another good thing that businesses can do to help them the clear debt is to renegotiate contracts and deals to try and reduce the burden, which can help free up money that can be used to pay off these loans. Other ways to generate cash to pay off debts include cutting down on small expenses, such as any technology you don’t use, as well as selling assets that you might not need at the moment. It’s always best to sell one big asset than several small ones, as you’ll generate more money doing this.