How to deal with 5 instances If You Can’t repay bills Due to The Pandemic

Almost every day, we are coming across a humongous number of COVID-19 cases in our country! According to the CDC (Centers for Disease Control and Prevention), on 8th July 2020, the total number of positive coronavirus cases in our country are 3,487,780! Isn’t it shocking?

At the same time, the number of claims for unemployment benefits is rising sharply! In April 2020, the unemployment rate hit 14.7% and it’s the highest since the Great Depression! Some of the major reasons being sudden lockdown and massive loss in business!

However, according to a report by the US Bureau of Labor Statistics, the unemployment rate has reduced a bit to 11.1% in June 2020!

But the harsh fact is, many people are still unemployed or getting a pay cut due to this pandemic! And most of them are worried about finding a way out to pay bills during COVID-19!

So, if you are one of them, don’t worry, my friend! Today, we are gonna discuss some of the best possible ways to consider if you can’t afford to pay off your different debts and bills!

Let’s start one by one!

Instance 1: You are having student loans

On March 27, 2020, President Trump signed the CARES (Coronavirus Aid, Relief, and Economic Security) Act to provide economic assistance to the peeps of our country, affected by this pandemic!

According to the CARES Act:

  • You don’t need to make payments for your student loans until September 30, 2020. And most importantly, no interest will be accrued during this tenure!
  • All collection activities for defaulted student loans are temporarily suspended.
  • Your employer can pay up to $5,250 towards your student loan and that too tax-free till December 31, 2020.

However, you can reap the above benefits only if you have taken out a federal student loan! And it includes Direct Loans, FFEL (Federal Family Education Loan Program) Loans, Perkins Loans held by the U.S. Department of Education.

In case you have taken out private student loans, talk to your lender about your financial hardship asap! Many private lenders like Sallie Mae, Discover Student Loans, etc. are offering various repayment assistance to support their consumers during this pandemic!

Read: How can debt consolidation help to pay off the student loan?

Instance 2: You are having a mortgage loan

Well, if you owe a federally or GSE-backed mortgage, the CARES Act can be your savior during this situation!

  • If you are going through financial hardship due to the COVID-19, you can request a forbearance for up to 180 days.
    But remember, mortgage forbearance can temporarily suspend or reduce your monthly payments. So, you will still owe your mortgage!
  • During the forbearance period, your lender can’t charge any interest or penalty or late fee on you.
  • Your lender is not allowed to foreclosure on you till at least August 31, 2020.

But what if you have opted for a private mortgage loan?

In that case, talk to your lender about your financial hardship due to the COVID-19 pandemic!

Many private mortgage lenders like Ally Bank, Bank of America, etc. are offering support to their consumers by offering payment deferrals or forbearances for a certain period.So, talk to your lenders about your financial hardship asap and seek repayment assistance!

If you can’t find a way out, you can look for strategic ways to get out of student loan debt.

Instance 3: You are having credit card debt

A CreditCards.com poll reveals that almost 59% of the consumers had entered the pandemic with credit card debt!

So, if you are one of them and going through financial hardship, it might be cumbersome to pay off credit card debt now!

The sad news is, the CARES Act hasn’t provided any relief for unsecured loans like credit cards.

However, some credit card companies like Chase, Citi, etc. are offering repayment assistance options like reduced interest rates, allowing consumers to skip payments.

So, reach out to your creditor and explain your financial situation to get repayment assistance!

But what if your creditor isn’t offering repayment assistance or what if you aren’t eligible for it?

Well, in that case, if you fail to pay on time, delinquency might be reported!

Read this article: What happens if you don’t pay credit card bills and what to do!

Instance 4: You have rent to pay

Most probably, you are thinking whether or not you will be evicted if you fail to pay the rent!

Well, the chances of eviction are very less! The CARES Act has provided a 120-day moratorium on all evictions from the properties financed with a federally-backed mortgage. However, this moratorium ends on July 25, 2020.

After that, if you can’t pay off your rent, your landlord can serve you a 30-day eviction notice. In that case, you need to find an alternate option within that period!

But what if you are a renter in a building with a private mortgage or the mortgage is paid off?

In that case, the National Apartment Association (NAA) recommends talking to your landlord about your financial situation due to the COVID-19 pandemic.

Besides, many states, counties, cities have issued moratoriums for evictions for at least 30 to 90 days to help renters.

So, check with your local or state government to find more information about moratoriums on evictions due to the COVID-19.

Instance 5: You have to pay for your insurance

Most of the people are going through some kind of financial crunches due to this pandemic. And it’s becoming cumbersome for them to pay for various insurance policies during this time.

That’s why most of the insurance companies are temporarily offering payment assistance. Let’s have a detailed view:

Life insurance:

Many life insurance companies are offering extended grace periods due to this pandemic. So, make sure to pay for your life insurance after the grace period is over. Else, you might lose your term life coverage!

However, if you have permanent life coverage, you can have options like reducing your death benefit, using dividends to pay your premiums, etc.

Auto insurance:

As the coronavirus cases are rising sharply, most of the people are refraining from going out. And it has resulted in reduced driving! So, some car insurers are refunding a certain portion of the insurance premiums to their customers.

For example, State Farm has declared to refund almost 25% of the premiums paid between March 20 and May 31!

Besides, if you are going through financial hardship due to the pandemic, communicate with your auto insurer and seek some financial assistance options like:

  • Waiving off late fees and penalties
  • Extended grace period
  • Payment plans

Homeowners insurance:

Usually, if you miss your insurance payment, you will start receiving reminders after the due date is over. And most likely, you will have to shell out a hefty late fee!

But due to the pandemic, the state insurance departments urged the insurance companies to offer some flexibilities like:

  • Considering late payments
  • Setting up a payment plan
  • Not canceling coverage due to nonpayment

So, talk to your insurer and explain your financial situation. Hopefully, you will find a way out to pay for your homeowners insurance.

Are you eligible for a stimulus check?

The CARES Act provides stimulus checks up to $1,200 to eligible US citizens to minimize the economic impact of the pandemic. Besides, stimulus checks will help to stimulate the economy by providing some money to common people for spending!

To be eligible for receiving a stimulus check, you need to be a US citizen with a valid Social Security Number. Besides, your eligibility depends on your adjusted gross income (AGI) too! Let’s check!

Filing status AGI Stimulus check amount
Single or married but filing separately Below $75,000 $1,200
More than $75,000 but below $99,000 $1,200 – 5% of (your AGI – $75,000)
Married and filing jointly Below $150,000 $2,400 and $500 for each qualifying child
More than $150,000 but below $198,000 $2400- 5% of (your AGI – $150,000)
Head of household Below $112,500 $1,200
More than $112,500 but below $136,500 $1,200 – 5% of (your AGI – $112,500)

So, if you are eligible for receiving a stimulus check, you might have received it already or might receive it within a short time! Because, according to the latest report by the House Ways and Means Committee , about 30 to 25 million payments are still left to be issued!

My suggestion would be, you should use your stimulus check very wisely! Don’t spend it randomly! You can use it for making necessary bill payments during coronavirus or you can stash it in your emergency fund too!

So, the bottom line is, you have to stop being worried about bill payments during coronavirus. Rather, you should look for various ways that can help you to pay bills during this COVID-19 pandemic! And I hope the above options will certainly help you to do so!

Lastly, take care of yourself and save money as well for a better future ahead!

Stay safe!

Debt Snowball Vs. Avalanche – When And What To Choose And Why?

Are you planning to pay off your debts?

Congratulations buddy! You are one step ahead of leading a debt-free and financially stable life!

But you know what? When it comes to paying off debts, you might hear a lot of advice! And amidst this advice, you might not find out the right way to pay off your debts. The reason being, you need a debt relief strategy that fits into your situation well!

Let’s say, one of your friends has become debt-free by following a debt consolidation method. And he/she has suggested you debt consolidation. But let me tell you, buddy, it might not work well for you!

That’s why I always suggest opting for a debt relief strategy that fits into your financial situation! Else, you might end up being in more debt

By the way, have you heard about the debt snowball and debt avalanche method?

Well, as you know, both of these are effective ways to pay off your debts. But you might be in limbo, thinking which one to choose!

So, here you can get detailed information about the debt snowball and debt avalanche method. And most importantly, when to choose the correct debt payoff method and why?

Let’s start!

Debt snowball method

In this method, you concentrate on paying off your debt with the lowest outstanding balance amount first! But at the same time, don’t forget to make minimum payments on your other debts.

The idea is that starting small will give you a forward momentum; just like a growing snowball. After you pay off your debt with the smallest amount, move to the next smallest debt. This way, you can stay motivated during your debt repayment journey!

Once you pay off one of your debts, even if the amount is small, it gives you a quick win to remain inspired! Then you move to the next smallest debt and the next one and so on until all of your debts are paid off!

Once you pay off a debt, you can dedicate more funds to the next smallest debt. This way you move to the next one and so on until all of your debts are paid off! By the way, is it sounding complicated to you?

Let me explain to you the debt snowball method with a simple example! Let’s say, you have 3 debts like:

  • $1,500 credit card bill @5% interest with $50 minimum monthly payment
  • $2,500 private student loan @8% interest with $150 monthly minimum payment
  • $8,000 personal loan @15% interest with $250 monthly minimum payment

In the snowball method, you have to make minimum payments to each of the debts. And extra dollars to pay off the $1,500 balance amount first (as this is the lowest amount debt in the example).

So, out of $500, you can pay $100 for paying off the $1,500 balance amount first. Then you need to make the minimum payments of $150 and $250 for other debts.

Once you pay off the $1,500 credit card debt, start paying off your student loan amounting to $2,500. So now, you can make a monthly payment of $250 for your student loan and $250 for your personal loan.

And finally, once your $2,500 student loan is paid off, you can contribute the whole amount of $500 to pay off your personal loan!

The advantage of the debt snowball method is that it helps to build motivation! A study by Harvard Business Review has revealed that beginning with the smallest debt makes you more motivated. And this can help you to pay off your debts asap with success

Debt avalanche method

It is quite similar to the debt snowball method! In the debt avalanche method, start paying off your debts from highest interest rate to lowest rate, irrespective of the outstanding balance amount!

If you think mathematically, this makes the most sense! You will pay less in interest if you tackle your debts in this order . And saving money on interest means you will help you pay off your debts more quickly!

You will make minimum payments for all your debts. The difference with the debt avalanche is that you have to start making the payments for the debt with the highest interest rate . This approach is pragmatic as it prioritizes the most expensive debt first!

Then you work your way through to the lowest interest rate debt on your list. If your high-interest balances are also your bigger debts, it might take longer to pay off!

To help you stay on your payoff track, you can follow some steps to stay away from personal financial crises.

Let’s say, you have an outstanding credit card balance of $3000 at 24% interest rate and another one of $4000 at a 20% interest rate.

Well, the $3000 credit card balance should be your top priority as it carries the highest interest rate. Continue paying off your debts and rolling their minimums into the extra debt payments amount until all debts are paid off!

In an avalanche method, you may have to wait for a long time to feel the triumph of paying off debt, especially if your high-interest debt is the largest too! You can take the help of a debt payoff calculator to see your progress and be emotionally strong!

Now, you might think which one should you choose? Debt snowball or debt avalanche?

Well, as you can see, it all depends on your financial situation! Debt avalanche focuses on paying off your debt which has the highest interest rate. But it can be cumbersome for you if the highest interest debt is your largest amount of debt.

In that case, I would suggest you go for the debt snowball method! The snowball method focuses on paying off debts with the lowest outstanding balance amount first and so on.

So, you might get an emotional boost once you pay off one of your debts, irrespective of the amount.

Don’t worry! Opt for a debt payoff method which suits best in your financial situation! Hope, this comparison of snowball vs avalanche helps you to decide wisely!

Factors Debt Snowball Debt Avalanche
Motivation You feel motivated with your victory of paying off debt, irrespective of the amount. Can be a factor for your demotivation as the time required will be more
Financial aspect You could end up paying more in interest over time. You can save money if you can stay motivated throughout the entire process.
Time required Comparatively less It takes a long time as the debt with the highest interest rate might take a long time to pay
off!

However, amidst some differences, both these debt payoff methods have a similar goal, i.e, to make you debt-free!

Also, if you want, you can also use both methods together. You will wonder how?

You can select 2 debts from your list – one with the lowest outstanding balance and the other one with the highest interest rate. Then, put an extra amount on both these accounts after making the minimum payments on others.

For example, quoting my previous example,

  • $1,500 credit card bill @5% interest with $50 minimum monthly payment
  • $2,500 private student loan @8% interest with $150 monthly minimum payment
  • $8,000 personal loan @15% interest with $250 monthly minimum payment

You can select the 1st one (credit card with lowest outstanding balance) and the 3rd one (personal loan with highest interest rate). Now suppose, you have an extra $200 every month to put toward paying back your debts.

So, put extra $100 each toward paying off these 2 debts. Doing so, you’ll be able to repay both the debts relatively fast. You’ll stay motivated since you’ll be paying off your credit card debt early and also, you’ll save interest payments on your personal too.

And don’t forget to let us know about your experience!

This is what happens to your student loan debt when you die

Student loan debt has become a big problem in a country, and why wouldn’t it be when 43 million people owe almost $1.6 trillion in student loan debt? When a debt load of such a huge amount is hovering over your shoulder, you may think that you’ve to make payments until your death. But is that the end of the story? Maybe or may not be.

Much depends on the type of student loan you have borrowed and the mindset of the lender.

What is the first step you have to take?

Check out what type of loan you have. If you have a private student loan, then the implication will be different. And, if it’s a federal student loan, then the consequence will be something else.

What happens to private student loans when you die?

It depends on what is written in the loan agreement. In most cases, loans that you have taken out in your name are forgiven when you die. So it’s better to ask the lender about the death discharge policy before borrowing money.

What happens to federal student loans when you die?

In this case, I must say that the US government has a broad heart. When you die, your federal student loan debt is also discharged. There is no need to make further payments on the loan. Someone from your family has to submit the original or copy of the death certificate to the loan servicer.

In case of Federal direct PLUS loans, the same rule is applicable. If the parent borrower or the student dies, then the original or copy of the death certificate has to be submitted to the loan servicer.

What about the co-signers?

Well, they are also responsible for student loan payments after you die. If you die, then the co-signer has to repay the loan unless something else is written in the agreement.

Here, a special rule should be mentioned, and that is the Economic Growth, Regulatory Relief and Consumer Protection Act . As per this Act, all loans that have been borrowed after November 20, 2018, have to release the co-signer when a student dies. If the loan was issued before that date and there is no death discharge policy, then there is another option. It is called a compassionate review whereby your loan could be forgiven or the obligation of a co-signer could be released.

How IRS deals with it

Just like the federal government, the IRS also becomes quite generous after the borrower dies. They don’t impose any tax on the forgiven student loan debt. The Tax Cuts and Jobs Act of 2017 made discharged student loans exempt from tax. And, this law is applicable until 2025 for both the private and federal student loans.

3 Steps you can take to protect your loved ones

If you love your family and wish to protect them from unnecessary hassles, then here are a few steps you can take.

1. Pay off student loan debt: If you want to safeguard your family from any unnecessary hassle, then try to repay your student loan as soon as possible. In case of federal student loans, there are lots of options. This includes deferment, forbearance, income-driven repayment plan, teacher loan forgiveness, state-sponsored repayment assistance programs, etc. You can also consolidate your student loans or refinance them.

2. Inform your family: Inform your parents about the type of federal student loan you have borrowed and the name of the servicer. Explain to them how they can contact your parents. I know it’s difficult to talk about your own death to your parents, but you need to do this tough task. Your family members need to know where they have to submit a death certificate if you die.

If you don’t wish to discuss it with your parents, then there is yet another thing you can do. You can appoint someone else in your family to submit the death certificate. In fact, you can appoint the person officially in your will.

3. Opt for the death discharge policy: When you’re considering a private student loan, ask the lender if he offers the death discharge policy. If he doesn’t, then you have 2 options. Borrow from someone who offers the death discharge policy to relieve your co-signer and yourself. Borrow from the same lender without getting any additional protection after your demise. I feel the first option would be better for you.

Final notes

Now that you know what happens to your student loan debt when you die, take precautionary steps to safeguard your loved ones, the co-signer, and the estate. Logically, they shouldn’t suffer just because you’re no more in this world.

What is financial infidelity and how to prevent it from ruining your life

One of the most dangerous things that can ruin your peaceful, calm relationship is infidelity. It is hard to save a relationship from the grasp of infidelity and it may even affect you from the core of your mind. Along with such devastating emotional or physical infidelity, many couples are also facing a new kind of impactful infidelity. It is popularly known as financial infidelity.

As per a survey from CreditCards.com, nearly 30 million Americans are hiding a checking, savings, or credit card account from their spouse or live-in partner. That’s approximately 1 out of every 5 citizens in this country that have a live-in partner or a spouse.

As per a report published in 2018, 19% of such couples had closed bank accounts or credit cards without telling their partners. Apart from that, 20% of those couples also admitted that they can cope up with physical cheating, but they can’t stand financial fidelity.

If you have also experienced financial infidelity in your relationship, then it will be very difficult for you to find your partner trustworthy again. You might also think that they might commit other types of financial infidelity whenever they have the chance.

So, you should know about this risk and how to handle such a situation along with the help of your partner.

Here I am going to discuss the symptoms and how to prevent financial infidelity.

So, let’s first understand the types of financial infidelity and how their characteristics are.

#Symptoms of financial infidelity

A survey commenced by the National Endowment for Financial Education (NEFE) in 2016 revealed that financial infidelity is quite common in couples, especially young couples. As per the survey conducted in 2018 by CreditCards.com, 15% of the couples admitted they have gone through financial infidelity and hid money matters from their partners. But, another 23% admitted that they believe their partners were always honest with them. However, few couples admit that they have lied about money or hidden financial issues from their respective partners when the situation calls.

Here are the symptoms of financial infidelity that couples may notice .

1. Lying about income

The survey conducted by the NEFE revealed 1 in every 20 individuals lied to their spouse about how much they earn in a month from different sources. Another survey in 2018 by Safe Home has also confirmed this fact with higher responses.

The survey said approximately 13% of men and 15% of women admitted that they hide their income details from their partners.

What are the reasons behind this act?

Couples may hide about their earning sources due to several reasons. Some may think their actual income may lure their spouses to overspend. Others may also exaggerate their income to show off how well they are doing professionally. This way a low-income individual can prevent the embarrassment from his/her spouse.

2. Spending secretly

It is the most common of all forms of financial infidelity. Couples spend money on their own choices but hesitate to reveal it to their partners. So, they have to cover up their undesired spending and keep paying. As per the NEFE survey, 22% of the couples admitted that they hide small purchases from their spouses. Another 7% also do the same, but they normally do this with major purchases. Another 12% said they hid bills or bank statements from their partners.

A survey, organized by Money Magazine in 2014, revealed that 22% of married couples hide their spending from their spouses. Men used to hide their expenses on electronics or sports items, or any other hobby oriented things. The women, on the other hand, typically go for clothing, shoes, and gift items for their friends and family.

People may use other ways to hide their expenses except for hiding the credit card bills. They may hide their late payment fees, their additional interest payments on payday loans, or hide expensive purchases, which can create a big gap in their household budget later on.

3. Hiding their accounts

It might be one of the most uncommon symptoms of financial infidelity. As per the NEFE survey, 6% of couples admitted that they keep secret bank accounts, away from the eyes of their partners. This number is greater with the couples who do not stay together.

The CreditCards.com survey also revealed that among all couples,
23% had secret accounts, especially those who lived apart.

4. Hiding their debts

One of the most serious forms of financial infidelity is hiding debts from your partner. About 1 in 12 couples hide their debt burden from their partners, as per the survey by the NEFE. Another survey organized by NBC News in 2018 said, 27% of couples, who responded in that survey, used deceptive statements to confuse their partners about the debts they have taken out.

Practically, taking out huge amounts of debt and repaying them is quite difficult if you do not act responsibly. These debts will engage a good amount of money from your monthly budget, which is hard to conceal. You may make those debt payments without telling your spouse, but how do you explain the situation when you’ll face a sudden financial crunch and you have no money to manage it? At that time you might want to inform your partner about the issue and borrow money from him/her.

#How to prevent financial infidelity

The sooner you stop this madness, the better it is for your relationship. Keep yourself and your partner safe from financial infidelity before it starts hurting you both. How can you do it? Let’s check out the options below.

a. Rectify your mistakes

It is wise to start rectifying the mistakes you have committed earlier. It is the best way to stop financial infidelity and make yourself completely clean about all other financial mistakes. Once everything is open to your spouse, there’s nothing more to fear about! You can confidently start repairing the damage you have done.

The next step should be building faith yet again! You and your spouse need to start solving any issues together. Your spouse was not aware of the fact that you have committed so much financially wrong. So, he or she should have enough time to adjust and understand the problem. You should also consider the fact that you may need a good amount of time to solve your issues completely. Your spouse may not cooperate with you easily since you have cheated with him/her.

If you feel that you need professional help to recover from this issue, then you may consider consulting a counselor to work on your relationship.

b. Find the core reasons

You should find the core reasons if you want to stop financial infidelity. Being a partner you should identify the behavioral pattern of your partner that may indicate his/her financial moves. For example – If your spouse is a shopaholic and spends too much on shopping, you should suggest him/her to take a break and only go shopping with you. This way you may help him/her to get rid of the shopping addiction.

You can’t do this alone. Your partner should also show confidence and willingness to change his/her daily spending patterns. This way he/she can control the shopping addiction

There are cases where one of the partners stole the identity of the other partner and took out huge loans or opened new credit cards. Unfortunately, when the other partner came to know about such financial infidelity, it was too late. Being the victim of an identity theft, the credit score of that partner might get a severe blow.

Such fraud can be detected only if you review your credit report daily.

c. Create a debt payoff plan

You need to wipe off the mess you have created through financial infidelity. So, you may create a solid debt payoff plan and get rid of all your debts as soon as possible. You should do it by collaborating with your spouse. Choose a time, and bring all the documents regarding your debts, consult with your spouse, and decide how to pay off your debts one by one. Make sure no debts should remain outside the list and make sure you pay them off totally.

You may discuss with your spouse and decide which debt repayment method should be best for you. You need to follow a proper budget so that you can save as much as possible to pay some extra money towards the debts. You may choose the debt snowball or debt avalanche method to handle high-interest debts.

d. Plan for your future

You might have to arrange a meeting with your spouse and discuss the financial situation you both are going through. Both of you should talk peacefully, without blaming each other for past mistakes. The meetings should focus on categories where the budget has reached the allocated limit.

You may need to attend a few meetings to repair your relationship. If you are experiencing financial infidelity, you may separate your money matters from your spouse for the time being, and later can re-establish your relationship.

e. Consider all options

Dealing with financial infidelity can be emotionally stressful. If you want you may include any third person to step in and solve your issues. If the problem continues to happen, you may opt for temporary separation and take a break from that relationship.

If one of the partners does not agree to co-operate or help each other, then it will be wise to end the relationship once and for all. However, it is wise not to make the final decision in a hurry. Take your time to handle finances during your divorce.

How to fight financial anxiety and depression like a professional

“Debt means enslavement to the past, no matter how much you want to plan well for the future and live according to your own standards today. Unless you’re free from the bondage of paying for your past, you can’t responsibly live in the present and plan for the future.”

― Tsh Oxenreider, Organized Simplicity: The Clutter-Free Approach to Intentional Living

We all know that debt can damage our financial health. But how many of us know that debt can also harm our mental and physical health to a drastic level?

For years, studies have revealed that people who carry debt also faced higher rates of mental health issues like anxiety and depression, compared to normal debt-free people.
You may get several monetary benefits if you deal with your financial problems. Those benefits may include big savings and relief from high-interest debts. This will improve your finances as well as improve your mood. The less you worry about financial issues, the more you can enjoy life without being depressed or anxious.

Let’s check out the issues financial anxiety may cause you.

Side effects of financial anxiety and depression

As per Mayo Clinic, financial anxiety and depression can cause serious problems like:

  • Insomnia or too much sleep
  • Headaches, weight gain, digestive problems
  • Lack of concentration
  • Nervousness and panic disorders
  • Hallucinations
  • Alcohol or substance abuse
  • Performance issues at work
  • Spoiled family life

Debt itself may cause serious health issues. Generation Z, having a large debt burden, also suffers from high rates of high blood pressure and heart diseases like stroke and cardiac arrest.

So, let’s discuss some ways to fight financial anxiety and depression, and rebuild your finances.

1. Identify the reasons behind your stressful situation

Whether it’s related to savings or credit card debts, it’s important to identify what’s causing your anxiety. List the biggest financial sources of stress and remember them.
You’ll understand that you are depressed due to the debt you acquired in the past, and anxious about how you are going to manage your payments in the future.
But if you want to stop the financial anxiety and depression, and other related health consequences, you have to closely examine all of your debts.
Checking the details of your debts and analyzing the terms, interest rates, will be a good start.

2. Choose a suitable debt- elimination method

Once you know how much you owe and to whom, it’s time to choose the best suitable repayment method:

  • Snowball Method:You have to make the minimum payments on all your debts. If you have any money left, then engage it to pay the smallest debt balance. Practically, this way you can get success sooner.
  • Avalanche method: You have to prepare a list of your debts according to their interest rates, starting from highest to lowest. Then make the minimum payments on all of your debts and engage the surplus money to pay off the highest interest debt.

You may opt for the balance transfer method to consolidate high-interest credit card balances. But make sure you pay the total balance before the introductory term ends.

3. Create a good emergency fund

People become anxious about the situations that are yet to come. You can not create a perfect plan to stop anxiety. However, it is possible to create a provision to back up your finances. Many personal finance experts may suggest you to create an emergency fund of three to six months’ worth of expenses. This way you can get relief from the stress and anxiety that might hit you as a sudden financial crisis.

4. Find time for yourself

You can easily tackle your financial anxiety if you want to. You need to take care of the different things in your life such as finances, relationships, personal hygiene, etc. Trust me, you can easily manage your finances and maintain your stress levels all by yourself. You just need to adapt few activities such as meditation, exercise, listening to melodies, etc.
The more you can keep your mind calm, the more effectively you can fight anxiety and depression.

5. Get rid of financial shame

Past financial mismanagement can lead you to face financial shame. This may create a constant feeling of anxiety. When you feel that shame about money, remember money experts also became experts by performing mistakes. It’s just a matter of time and experience which will also make you a money management expert.
If you are having any confusion about this situation, talk to an expert for further guidance on how to manage your finances like a pro.

6. Meet an advisor

Make an appointment with a financial advisor. Talk to him clearly about your financial anxiety and depression. An advisor can suggest the best ways to conquer your fears about finances.

Endnotes

It is quite normal to become financially anxious or depressed. But with proper guidance and self-motivation you can overcome this issue once and for all.

Can You Convert Unsecured Debt To A Secured Debt And Vice Versa?

Hey there! Are you planning to borrow money?

Most likely, you will have to make a decision about taking out a secured loan and an unsecured loan!

What is an unsecured debt?

As the name implies, it does not require any security. In other words, this type of debt has no collateral backing. If you default on this debt, the creditor can file a lawsuit against you to collect the owed amount.

One of the common examples of an unsecured loan is a credit card! Usually, the creditors offer you a credit line based on your creditworthiness and promise to repay.

Besides, your credit score and debt-to-income ratio play an important role to take out an unsecured loan. That’s why banks charge a higher interest rate on these loans.

What is a secured debt?

Creditors offer secured debt, backed by a collateral, to reduce the risk of lending money to you. If you default on repayment, the creditors can seize your collateral and sell it off to repay your debt.

It can be easier to qualify for a secured loan. The reason being, the creditors have the assurance that they will be able to recover the amount in case you default.

But how can you convert a secured debt to an unsecured one?

  1. Paying off your car loan with a credit card

    Yes, you heard it right! You can pay off your car loan with a credit card. You might think that since auto loan is a secured one, how will it be possible to pay off with a credit card?

    It’s possible! It solely depends on your lender whether or not he/she accepts credit card payments. Some lenders accept credit card payments but with a hefty processing fee.

    You can opt for a credit card that has 0% APR (Annual Percentage Rate). You can transfer your auto loan balance to the credit card. Doing so, you can repay your auto loan with 0% interest rate!

    But usually, credit card companies offer a 0% APR for a limited time. So, try to pay off your debt within that introductory period.

    Thereby, you are converting your secured debt, i.e, auto loan to an unsecured credit card! And you can save money on the interest payments, if you can repay within the introductory period!

  2. Transforming your secured credit card into an unsecured one

    Let’s say, you have no or very low credit score. But you need a credit card! So, what will you do then?

    The solution is to opt for a secured credit card! With such a card, you will have to deposit some assets as collateral for the creditor.

    Well, you might be thinking that credit cards are usually unsecured ones. Then why are you keeping collateral for taking out a credit card?

    Buddy, as you have a very low or no credit score, you don’t have anything to show your creditworthiness!

    But if you can establish responsible behavior while using a secured credit card, you can qualify for an unsecured one!

    Yes, you can convert your secured debt into an unsecured one! You have to charge your credit cards for small amounts. And make sure to pay off your outstanding balance amount in full and on time, within the grace period

    Your creditor might be satisfied if you make the minimum payment only. But your goal should be to pay off the whole amount you have charged in that billing cycle.

    If you continue doing so, your credit score is likely gonna improve. And the creditors might offer you an unsecured credit card!

    Well, let’s say, you have got qualified to opt for an unsecured credit card and you are using it! But due to some financial crunch, you have fallen prey to the debt trap!

    Then what is the solution?

    The best way to convert your unsecured credit card debt to a secured one is by consolidating your debts by a Home Equity Line of Credit (HELOC).

    It is also known as a “second mortgage” as you are taking out an additional loan on a house that already has a mortgage.

    When you take out a HELOC, you are borrowing from the bank keeping your home as collateral. Like a credit card, it is a revolving loan.

    However, unlike a credit card, a HELOC comes with a time limit! It means that you can borrow money for a certain period like 5 to 10 years, known as the “draw period”. During this phase, you can withdraw money upto your credit limit only by making the interest payments on the principal amount!

    After the draw period is over, most of the HELOCs will have a repayment period of around 10 to 20 years. You have to make regular payments for the principal and interest until your loan is paid off!

    But you know what?

    With a HELOC, you are borrowing against your home equity (the value of your home – the amount you owe on your primary mortgage). In other words, you are taking out a secured loan to pay off your debt! So, you have to keep in mind the following things:

    • (i)You might lose your home if you don’t make payments as your home is the collateral.
    • (ii)You need to have certain equity to opt for a HELOC. Usually, a HELOC can let you borrow up to 85% of your equity!
    • (iii)Most likely, you will need a debt-to-income ratio in the lower 40s and a credit score of 620 or above to take out such a loan. Besides, the value of your home should be at least 15% more than you owe.

    However, it is somehow better than an unsecured personal loan. Usually, HELOC interest rates are variable. That means, they are based on the Prime Rate plus 1% or 2%. The average HELOC interest rate in August 2019 was around 6.57%. As you can see, the interest rate of HELOC is comparatively lower than that of an unsecured loan!

    So, you can consolidate your high-interest unsecured debts by using a HELOC as it has a lower interest rate! And thereby, you can certainly save money on interest payments by converting your unsecured debt into a secured one!

    So, as you can see, you can convert your unsecured debt into a secured one and vice versa. But you have to keep the important things in mind which are mentioned in this article.

    And don’t forget to let us know about your experience!