You often hear gurus talk about the alluring dream of financial freedom when teaching others how to escape debt, yet they make no mention of the very issues that are keeping most from exercising this so-called “freedom.” They make it seem as though escaping debt slavery is as easy as becoming a responsible individual. But what happens when you simply don’t have enough money to meet your monthly repayment obligations, your credit is too poor to allow for additional financing, and compounding interest rates have you trapped in a vicious cycle of ever-growing debt? How do you get out of this situation, or better yet, how do you avoid it altogether?
Steering Clear of the Border
If you want to keep both feet on the right side of the debt slavery|financial freedom line you need to recognize situations that will make you vulnerable to excessive interest rates and late payment penalties, including:
- Overwhelming yourself with too many monthly repayments
- Taking out loans with excessively high interest rates
- Not accounting for miscellaneous/unexpected expenditure when budgeting
- Applying for loans while you’re unemployed or have inadequate little cash flow
- Making minimum payments on credit cards instead of repaying the full amount due at the end of each period
Some would make the argument that debt is not actually slavery because you’re working to repay funds that you’ve already borrowed and spent, and this would be true if loans/credit cards carried no interest at all. But when you factor in interest over a 1-5 year period you realize that a large sum of the money you’re paying back was never borrowed. Yes this is an agreement that you committed to, but that does not change the fact that after a certain point you’re working to repay funds you never got to use, for the sole purpose of giving the lender a profit.
Appealing to Creditors
If you’ve already made some of the above mistakes and are now dealing with consequences with no foreseeable prospect of being able to reverse the effects, there may still be hope. You can contact your creditors to discuss the possibility of an adjusted payment plan that would allow you to make lower monthly payments over a longer period of time, thereby granting you the leniency needed to recover. When doing this it is imperative to prepare a spreadsheet that lists your expenses/income to show sustainability and emphasize the fact that a restructured payment plan would increase the creditor’s chance of being fully repaid. If independent negotiations fail you can contact an insolvency practitioner or debt negotiator to have an official individual voluntary agreement (IVA) drafted and proposed on your behalf.
Leveraging Your Assets or Repaying Slowly
Finally, if you can’t get your creditors to agree to a debt management plan, you may have to resort to using some of your assets as collateral in order to gain approval for a secured debt consolidation loan. This would allow you to transfer all of your debts to a single lender, thereby centralizing monthly repayments and reducing the total interest owed.
Sometimes the line between financial freedom and debt slavery is as thin as the dotted line on a loan agreement. Remember that you have the power to control your destiny and completely avoid financial hardship with a little bit of planning and wise decision-making.
This article was written by Marcus Berg on behalf of Trust Deed Scotland. Click here to find out more about their services.