When you’re in the red, your highest priority should be to pay off that debt. Often, in order to circumvent high interest rates and avoid higher spending and budget cuts, those with outstanding accounts resort to debt swaps.
Exchanging a debt means making a payment of the debt amount that bears high interest through a loan of the amount, but with lower interest. The strategy, which should be used as a last resort, does not take you out of the red, it just relieves your expenses with the payment of the installments.
The first thing to do is to assess the debt and try to renegotiate it with the creditor. See how many installments are missing and propose to pay in a smaller number of times, ask for a reduction in interest rates explaining your situation or try to pay in cash.
You can always make a proposal but remember that a bank, or other institution you owe it to, is not obliged to fulfill this type of request, since it has signed an agreement through a contract in which all the information is. The best way to achieve renegotiation is to save a certain amount to propose the payment of several installments at once. Just asking for an extension of payment time with lower installments or a decrease in fees does not guarantee that this will happen.
Even if you have achieved a decrease in the amount that would be paid for months, your money may not be enough. This is the time to get a loan at lower interest rates and avoid the “snowball”, that is, debt growth.
Compare interest rates and switch banks to get a more affordable loan if needed. When negotiating a loan, do not be guided only by interest on the amount of the installment, also be aware of the number of installments, taxes and aggregate values. Make a preliminary calculation adding up all the items charged and identify which institution offers a loan that will cost you less. A tip is to always search using the same amount with the same number of installments and then compare the value of the installments.
Whether it is a debt with an overdraft, or credit card, car installments, real estate or other consumer goods, you should be willing to research the best way to exchange your pending expense for one that costs you less. Below, you can find the most suitable forms of credit for those who want a low interest loan with better payment terms:
Payroll loans: this type of loan is the most sought after. In this case, the portion is deducted directly from the individual’s salary. As it does not offer great risk to the bank, it has the lowest interest rates and easy payment conditions for installments.
Secured loans: other ways of obtaining a loan can be thought of as alternatives to pay a larger debt. In this form of credit, you can use assets such as your car or property as collateral. With that, you will get cheaper installments. But remember: your goods are the payment guarantee that, if not, can be taken by the financial institution.
You are still in debt!
After taking out a loan and paying off the most expensive debt, your worries are not over, they now cost less for your pocket. Therefore, for the debt exchange to be worthwhile, you must not neglect yourself, forget the payment of the installments or not have enough account balance to discount the amount, in case of credit directly debited from your salary.
Take action to spend within your limit, without waste. Avoid using overdrafts and credit cards, so you stay away from high interest rates. Another step you must take is to control spending to save and get out of debt faster.
Keep an eye on expenses such as leisure, buying clothes, electronics and other expenses that can be postponed to a time when you are not in the red. Save by focusing on your debt and, at least for now, don’t use the money left over at the end of the month to purchase other things.
Know that debt exchange is advisable for urgent cases, in which the amount of the expense increases rapidly. The most important thing is that you do not go into debt again because this exchange only avoids higher expenses.