Cost of Debt and How It Can Affect Your Financial Situation
Debt begets more debt. Has there been a truer statement? This is especially true right now during a very hard economic cycle. Most people are struggling to pay their debts and it seems that when you take one step forward, you are pushed two steps back. Here are the ways that this happens (and what you can do to get out of the cycle).
Credit card companies raise their rates and fees while lowering your credit limit thereby incurring over-limit fees. It is up for debate whether this is caused by the economic conditions now or not because credit card companies are banks who have been bailed out by the federal government financially. But, nevertheless, they found it necessary to raise interest rates (finance charges), and fees while lowering credit limits at or just above current balances thereby incurring over-limit fees. The way to get out is to do a balance transfer if you can, or better yet, pay off the balance and close the account. It is of less importance at this point about the dip in your credit score that closing an account will cause.
Pay higher interest on loans and credit cards. Not only do credit card companies higher rates ding you pretty badly, but when you go to get other loans, your amount of debt and low credit score pushes the interest rates up thereby extracting more money from you on a monthly basis. This is especially hurtful if you are trying to re-finance a loan in order to obtain a lower monthly payment. The only way out of this is to work on making your payments on time and allow a few months to go by performing well so that your credit score goes up. Once it has reached a higher level, then re-apply for that loan.
Find yourself paying late fees on loans. When you are struggling with debt, it is very hard to pay your loan payments on time. What happens is that you have one bad month in which you miss the payment deadline and then you incur a late fee. Those fees add up over time and can extend the number of months that you owe if the loan is a personal unsecured or an auto loan. You will likely end up with another month or so in paying off those late charges unless you pay them as you go.
Contact your creditors or banks and see if you can get an extension on a personal loan or an auto loan. They are being very understanding right now because of economic conditions and you might find that you can get a 60 or 90 day extension with which you can get back on track with them so that you are not late on payments, and at the same time use that little extra bit of time to pay down the balance of another very small loan or lower your credit card debt and get rid of it.
Take some time to make an effort to improve your situation so that you do not feel like you are locked in a cell and cannot get out. The tips above should help you to move ahead. Once you begin to make progress, do not give up until you are in a much better position with your worst debts paid off.