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Managing Debt by avoiding too much Debt Responsibility

By Janet Lacey
Published: Thursday, January 7th, 2010

Some people can be too naïve to admit that there will come a time that they will need to get a loan or an installment agreement. Living a debt free life if the individual is working with a stiff budget can prove to be more laborious and difficult as it appears. Buying everything at the right value is not that simple. On the other, being indebted to a financing companies limit the possibilities that the indebted individual can do with his finances. In the United States alone, millions of indebted individuals are failing in their managing debt plan simply because of too much debt to start recovering from.

In recent studies, it has been proven that for a household to be able to fit its needs with its means, it needs to direct their budget at strict allocated proportions. For example, shelter costs like rent or mortgage should not exceed the 25% gross income of an individual. Adding up, the transportation costs and other costs like utility bill payments and insurance premium payments should not exceed 10% of the individual’s gross income. Otherwise, the financial stability of the individual will be jeopardized. Managing debt will be easier if individuals will follow these universal budget constraints. Unfortunately, after the recession many households and individuals have been indebted too much that adapting this budget constraints almost seems impossible.

It should be recognized that there are still indebted individuals who are adapting debt management tactics to financially survive. There are costs that should be accepted by borrowers to be too high to avail. Three of the most common overshot loans are student loans, mortgages and auto loans. These loans if unpaid on time will appear and will greatly affect the wellbeing of the credit report and FICO score of the indebted individual. Among the millions of people who have availed these loans at least 60% of them found out that they have overshot their projection in their ability to pay for these.

Mortgages and other shelter costs can be stretched to a 30% of the budget. This can only be done if the indebted individual does not have other major costs of living such as childcare, healthcare and even education. Usually, mortgage financing companies are the most considerate in terms of helping out the credit account holder in his or her credit report and score. These companies are flexible enough to adjust interest rates and payment schedules. Auto loan companies have the right to repossess a loaned car even if the payment was just delayed for a day. But these companies do not opt to do so because cars depreciate fast. And lastly, student loan companies in their own right are considerate enough in adjusting the duration of payments.

But no matter how relatively considerate these companies can be, if a borrower overshot his or her budget projection little can be done. Managing debt through these types of loan can only be achieved through personal honesty. Borrowers should be honest to themselves whether they can afford it or not. They should also be transparent enough with their creditors most importantly in the time that they have accepted that they cannot pay for the loan. Good communication with creditors can let even the most indebted individual to make a deal with his or her creditor to lower the rates or extend the payment period of the loan.

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