Different ways of managing debt – Consolidation of Loans

Debts anyone can have and some debts are not strange at all. Loans are a normal part of an ordinary private economy. Most common of all is to lend to housing in the form of a mortgage – so do the majority of those who own their own home. You can also borrow a car or have a credit card that you use to buy food or other items. However, there are also bad debts and these can create a bad financial situation.

We will go through some different ways to get out of this debt trap

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The most common debts, such as mortgages, usually create no problems in your finances. At least not as long as you have not been able to borrow more than your finances can handle or if you have lost income etc. These debts and their costs should fit within your budget and should not create any immediate problems.

However, there are many debts that can create problems and it is mainly about expensive private loans, SMS loans and similar small loans plus maybe credit card debt and installment purchases. If at some point you have failed to pay back your loans properly and therefore have had to pay extra fees or interest, etc., it will be even worse as the debt increases and it becomes more expensive to pay it off.

Having debts that weigh down one’s finances can be a pain. It is easy for expensive debts to eat up a large part of your salary and take up too much space in your budget. This can lead to a very tight economy with small margins, but also time enough that you will find it difficult to pay for everything you have to pay each month.

What not to do

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It can be good to start with things you shouldn’t do to try to manage your debts. The things you can do are important, but the things you should avoid can often be even more important.

One of the most important things is that you should not borrow more money to meet your expenses. Just taking out a loan to manage to pay your bills a month is an extremely temporary solution and it only makes matters worse in the long run.

Take no more loans if you are not sure about your finances

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This is what you might call digging a deeper hole, because you are already in a bad situation and have a hard time paying off your debts and then putting on another debt. All loans have interest and you have to pay back some of the loan itself plus the interest after a month and if you already had a hard time getting it around then it will not be immediately easier to manage the month when you also have the new loan.

A loan can clearly work to cover a temporary problem in cash flow, if for some reason you happen to have unusually little money in the account and have to pay a bill or if there is any acute unexpected cost that you just have to solve – for example, the car or the refrigerator breaks down. What you should think about then is that you must know for sure that you can afford to repay that loan in a good way.

If you are absolutely sure that you can get that loan then it is ok to borrow, but it is not ok if you know that next month will be tough. The more loans you have and the more interest you have to pay, the deeper the hole you dig for yourself. The risk is that you will not be able to repay the new loan either, and then you have only built on the additional debt.

Don’t ignore the problem – grab it right away

Human nature has several defense mechanisms when something is difficult or difficult and one of them is simply to bury your head in the sand and ignore the problems. If you just ignore them or think about them, maybe they disappear? Unfortunately, this does not work, and ignoring the problems only makes it worse.

If you have debts that cost money every month, you must pay them in agreement. If you do not do so, there will be late interest and other fees that you also have to pay and it will be more expensive and expensive. The more you ignore a debt, the worse it gets. It will not go away by itself.

If you can get to grips with an economic problem quickly, you can often also solve it without any major consequences, perhaps even before it has even become a problem. If you can handle the situation from the beginning, it does not have to be so dangerous. For example, if you have a loan that you for some reason find difficult to pay under a contract, it is not automatically run – because you can take measures that significantly reduce the damage.

The first thing you can do is contact the creditor (the person you owe money for) and explain the situation. With a little luck, you can then get a deferral or any better payment plan that actually makes you able to do it. You can also use your own finances to save money on other things and thus manage the payment of the loan.

The most important thing is that you do not ignore the problem, because it will not only remain, it will be worse and worse all the time. When the debt is built on and it was an expensive interest rate right from the start, it can get really expensive after a while. Ignoring a debt or similar problem leads to financial problems fairly quickly and you can end up with the Crown Chief if you are not careful.

Good things you can do to manage existing debts

Good things you can do to manage existing debts

If you have debts and want to try to do something for them, what should you do? Here are some options that can give you some tips on how to try to manage expensive loans and other debts that eat up your money.

Prevention

The first tip is really about preventive measures – things you can do to avoid hard debts while still having a sensible economy. There are quite a few things you can do to prevent financial problems.

First, you should always think through loans and other liabilities before choosing to buy or borrow. You always have to weigh how important a loan etc is against how much it is based on your monthly costs and what risk you are exposing your finances to. Borrow only if necessary or if you know that you will certainly be able to repay the loan in the future. If you have good margins in your finances, a loan is often not so dangerous.

The next tip is to always have a certain buffer saved for bad days. Many times you take out a loan just because you have a temporary problem with the cashier – that you can not afford to pay anything specific, for example, because an unexpected expense appeared. If you had money saved you would not have had the same acute problems and then you can use your buffet savings to solve the problems instead of taking a loan. The money you have saved in the buffer is just for this kind of thing and that money is also for security, so you do not have to borrow and risk your finances unnecessarily.

The last tip is to keep track of your expenses and income and to find a good balance there. Make a good budget and try to make sure you have a stable private economy with good margins. If you have a sound and strong economy, you rarely need to borrow and if you still choose to borrow, you should of course count on what it can cost and make sure it fits within your budget. If you are good at this, the risk is not so great that you will run into financial problems due to a bad loan.

Gather your expensive loans into a cheap big loan

Gather your expensive loans into a cheap big loan

In fact, collecting your loans is a really good tip if you can only get through the big cheap loan needed. The idea is that if you have several small loans with high interest rates, they will cost a lot of money each month in interest costs. It would be best if you could simply get rid of those loans completely.

But of course it is not so easy that you can only pay off the expensive loans anyway – because if you had the money lying around you would probably have paid off the loans also to avoid the expensive interest rate. There is a new big loan coming into the picture.

The big loan must cover all the small expensive loans that you want to redeem (alternatively the very worst expensive loans) and it must also have a clearly lower interest rate than the loans you have to settle. Small expensive private loans, sms loans and credit card debts can often have really high interest rates. Private loans and credit cards can have an interest rate of up to 30% and then there will be a lot to pay each month.

If you can get a large and cheap private loan, with an interest rate of eg 7 or 8%, you will drastically lower your loan costs if you have some of the expensive loans. This is especially true if you have been bad at paying them earlier and built on larger debts. You can then go down to an interest rate of, say, 8% instead of having three or four small loans with an average interest rate of 28%.

If we think you have three small loans totaling SEK 40,000 with an interest rate of 28%, that means an interest cost of about SEK 933 a month. If you could instead redeem those loans and take a single large loan with an interest rate of 8%, the interest cost would instead be SEK 267. This is a saving of SEK 666 or 71% every month. It is a huge difference and gives quite a lot more money in a strained private economy.

Solve the loans by raising extra money

Solve the loans by raising extra money

Taking a big cheap loan to settle your small loans is a good tip but it goes without saying that you can’t fix any own money to settle your expensive loans and even if you manage to collect them into a single large loan then it is after all, a loan with interest that must be paid. It is better if you can raise money yourself to pay off your debts.

Doing this may not be straightforward and may require some sacrifice. But if you can get money in some way that can pay off the expensive loans then it is really good. What you can do is try to find things to sell, things that you do not need or that you might actually use but that you can imagine sacrificing to save your finances.

Review your assets and what can be done to get a greater amount of money. Pay off the most expensive loans first and settle them completely, so you avoid their expensive interest costs. Work your way down. You will soon find that you have more money in your budget to move around.

Long-term method of saving and patience

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If you cannot get a bigger loan to collect your expensive debts and also not directly have so much you can sell etc to fix money to pay off the loans then it is just to do the job the slow and maybe a little hard way.

You simply have to take it one month at a time. What you should do first and foremost is to make a proper budget to see what comes in and what goes out every month. The better your budget reflects your real costs, the better. See how much money is taken and what it takes to be able to pay on all debts you have.

It is important that you manage your payments during this period to avoid the debts becoming even more expensive or that you end up at Kronofogden. Then look at what you can change to save money in your finances. Anything you can save on to get more money over each month is good.

Once you find some things to save on and start getting some more money over, you can start spending that extra money on paying a little extra on the most expensive of your small loans. Pay extra every month until the entire loan is redeemed. It may take a while but it is important to be good and keep up.

After a while, when you have started to pay off the first loan, you probably notice that you have a little more money each month. This is simply because you have lower interest costs. When you have paid off the first loan you have more money left over than you had before and you can then spend all the extra money on paying off your second most expensive loan.

Work on it this way and pay off one loan at a time. It will be a kind of snowball effect because you are constantly getting more and more money over each month while making the loans faster and faster. It may take a while to become debt free, of course, but time is enough if you just stick to your plan and manage your budget.

 

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