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  Category: Articles » Finance » Debt Consolidation » Article

Creating a Budget To Reducing Debt!

By Erin K.Smith

Some very important factors, such as a grace period and subsidies, will also
be part of the benefit package your consolidator can negotiate for you.

Many of these desperate consumers find themselves contemplating a
bankruptcy filing, but bankruptcy can carry a legacy you will have to live
with for years. A bankruptcy filing will stay on your record for a minimum
of seven years, and you may find it difficult or impossible to obtain
necessary credit in the interim. There are numerous types of debt,
including basic loans, syndicated loans, bonds, and promissory notes. Debt,
especially large sums of debt, can also be secured through a mortgage or
other security interest over some of the debtor's property, in which case
the creditor will have some rights over that property in the event that
the debtor becomes unable to repay the debt and defaults on the loan.

If your objective is to reduce interest rates and lower your monthly
payments, avoid bankruptcy, consolidate your bills and have one monthly
payment, or simply get out of debt the fastest way possible, then a debt
consolidation loan could provide the answer.

Creation of a Budget

No man is an island. We all need help once-in-a-while. We're not only
referring to personal matters. We're talking about financial matters. We
reach a point where we have to buy something out of necessity, but we
can't pay in full just yet. An example of this is a home. Now the time has
come for you to repay on what you own. You must have the discipline to
plan out how much you should have saved so when your time is up and
you have to shell out the money you owed there and then (plus
interest), you wouldn't have a hard time doing so.

Prioritize which of the debts must be paid first. Prioritize your bills. Make a
list so it would be more organized because you could see it right in front
of you. This is what you call establishing goals. Establish first what must be
prioritized over those you could schedule paying some other time.

The essential debts are debts that should be on top of your list. These

- Rent or mortgage. Of course, who in his right mind won't pay up as
soon as possible. Paying your rent or mortgage bills on time helps you
have a roof over your head.

- Child support. If you don't pay on time, there's a possibility you can be
held behind bars.

- Utility bills. As much as possible, set aside a budget on gas, heating,
water, electricity or telephone when you get your paycheck. In doing so,
when the bill comes, then you have something prepared.

- Car payments. This also includes car maintenance.

- Other secured loans. If you don't repay collaterals, the creditor takes
the property even without court interference.

The non-essential debts can be set aside because when these aren't
paid, they don't have that much of a side effect. It's a desired goal but
not really a priority. The only concern that can be considered when you
don't pay non-essentials debts for a long period of time is the negative
image it could project on your credit report.

- Department store and gasoline charges. Failure to pay these charges
may result in losing credit card privileges. If it's too large, you might be

For many who buy wisely, the equity could be substantial. A home equity
loan can be used to pay off high dollar items, pay for college tuition, and
be used to pay off those high-end credit card accounts. How to address
Debt Collectors. There is a law that gives certain conditions for debt
collectors as to when and how they should ask you to pay. The federal
law, Fair Debt Collection Practices Act, clearly states that those collecting
debts may not bug you, give false assertions, or do practices that are not
fair when they are getting to collect money from you. Having trouble
paying your bills? Getting dunning notices from creditors? Are your
accounts being turned over to debt collectors? Are you worried about
losing your home or your car?

The main reason for this risk is that in order to secure a lower interest
rate (and thus a cheaper overall payment rate), you'll need to present
some sort of collatoral to back the loan. If you have an attorney, the debt
collector must contact the attorney, rather than you. If you do not have
an attorney, a collector may contact other people, but only to find out
where you live, what your phone number is, and where you work.
Collectors usually are prohibited from contacting such third parties more
than once. In most cases, the collector may not tell anyone other than
you and your attorney that you owe money.

- Loans from friends and relatives. Morally speaking, there is an obligation
to pay but sometimes since they're family, we think that they will
understand if we can't. Check with them if you can delay the payment
and ask them for how long.

- Newspaper and magazine subscriptions. Little by little, if you haven't
paid, they'll amount to so much.

- Legal and accounting bills. If these remain unpaid after a long period of
time, then that's when you might be sued.

- Other unsecured loans. In unsecured loans, there's no collateral for the
debt. This means that the creditor can sue and then collect the debt.

Here's the confusing part. Some of the bills border between essential and
non-essential. If you let these bills defer for a long period of time, it could
have consequences in your personal life.

- Auto insurance. The consequence in some states is losing your driver's

- Medical insurance of bills. If you have a tainted record, you might have a
hard time getting new insurance in the future.

- Credit and charge cards. If you don't pay your bills on time, you might
lose your credit privileges and would have a hard time applying for a new
credit card.

Now that we laid out the groundwork on how you can prioritize which bill
to pay first, we move on to having a time frame. It's best that you have a
calendar in front of you. A palm pilot or the calendar in your Microsoft
Office program will do. Mark the dates wherein you would have to pay
the specific debt C be it essential or non-essential. Then what you can do
is set aside the bill that is allotted for that debt.

As for the budget, prevention is always better than cure. You know how
much you get in a month. That being in mind, you must allot how much
percentage of your salary shall go to which. Then do your best to stick to
that budget. If this is how much you should spend for leisure, then that's
how much you should spend for leisure. If at one point, it went
overboard, then there would have to be a sacrifice on another aspect,
such as food. That seems off, right?

Debt is a hard thing to live with, reduce debts today! So even in budget,
you must also list down which is number one for you. Have the discipline
to stick to your priority, your budget and your time frame. If you
succeeded, paying the bills won't be any problem. It may be more
convenient to make one payment rather than several. Or you can improve
your cash flow in the short term by reducing monthly outgoings. But this
may cost you more over time because you are paying the debt off over a
longer period of time. Interest rates for credit card debt consolidation
loans through traditional lenders may be based on your credit score. If
high, you are likely to get a credit card debt consolidation loan at a lower
interest rate. Stop spending on things that aren't absolutely necessary.

Each individual will have to define what "necessary" means, but it may
mean taking a sack lunch to work, bringing your own coffee instead of
stopping at Starbucks, and canceling that subscription to HBO. Debt is a
hard thing to live with, but we all have it and deal with it everyday.
Sometimes it is manageable, sometimes you feel like you can barely keep
your head above water and unfortunately many times you feel like you
are drowning in it!
About the Author
Reduce debts today for a better life!

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