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PERSONAL FINANCING
Managing Your Debt
During the holiday and festive season some of us run out of cash and revert to our credit cards to purchase dinners or last minute gifts. Usually these are spontaneous purchases, which tend to cost more than we originally bargained for.
Credit card debt is one of the most common forms of debt in the world and is growing at a rapid rate in Asia. Most credit cards offer a 30 day interest free period, which is usually enough time to clear any debts incurred. But what if you used your card to pay for your overseas holiday, presents, celebration and perhaps a new wardrobe? Can you afford to clear your debt within the specified 30 days or will you have to pay it off over time - which means you will incur interest? In Asia where credit card interest can amount to 25%, this is an exorbitant cost.
Now is a good time to start taking control of your debts.
What should I do if I'm having trouble managing my debt?
If you find that you're having difficulty controlling debts such as a credit card or a personal loan, you should contact the credit provider. If they're made aware of your circumstances, they may be prepared to restructure your payments over a longer period of time. Remember that it's in the interest of the lender to recover their money, even if it does take a little longer than expected.
It’s also a good idea to get assistance from a qualified financial adviser. With the right advice and a workable budget in place, it may only be a matter of time before you're in control of your debt once again.
How can debt consolidation help?
Put simply, debt consolidation is the process of replacing several separate debts with one new debt (loan). For example, you have an existing home loan, a car loan and a credit card debt. A new loan (secured against your home) could be arranged which effectively pays out these debts and then continues to operate as a normal home loan.
Potential advantages
The annual interest paid on the new loan is usually less than the total annual interest on the other debts combined.
Annual repayments on the new loan may be less than the total repayments on your current debts.
Ongoing transaction and administration costs are less with one loan compared with several separate debts.
Manageability – one monthly statement and one monthly repayment.
Potential disadvantages
A loan which may potentially be paid over a shorter period will now be extended.
A longer loan term means total repayments can be higher.
Fees and charges associated with taking out a new loan or paying out other loans early.
Beware of Offers Too Good to be True
Many people in debt find that the shame of owning up to any uncontrolled debts shameful and embarrassing. This means that many people who are heavily in debt will find that desperate times calls for desperate measure and they seek out quick fixes. We see many people and companies start to appeal to consumers with poor credit histories. They promise you easy money or for a fee, to clean up your credit report so you can get a car loan, a home mortgage, insurance, or even a job. The sad truth is that easy money is high risks. In many of these cases loan sharks may be involved who would charges even higher interests and give unfavourable terms.
The Warning Signs
If you decide to respond to a credit repair offer, look for these tell-tale signs of a scam:
•companies that want you to pay for credit repair services before they provide any services.
•companies that do not tell you your legal rights and what you can do for yourself for free.
•companies that recommend that you not contact a credit reporting company directly.
•companies that suggest that you try to invent a "new" credit identity - and then, a new credit report - by applying for an Employer Identification Number to use instead of your Social Security number.
•companies that advise you to dispute all information in your credit report or take any action that seems illegal, like creating a new credit identity. If you follow illegal advice and commit fraud, you may be subject to prosecution.
Traditionally, many of us will seek financial advice in relation to growing and managing our assets, but not regularly seek professional advice about the management of our debts. Successful creation of wealth in the long term is reliant on finding the balance between regularly reviewing your assets and the debts you may have incurred.
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