Balancing debts
The debt trap can snap shut quickly. But especially when instalment payments threaten to get out of hand, you need a particularly cool head. Because without a suitable strategy, the path out of overindebtedness usually fails.
Creating a household budget and a realistic overview of your assets and liabilities reveals the options to balance debts and, in the long term, achieve relief for private finances through intelligent debt consolidation.
Balancing debts after overindebtedness
When monthly burdens permanently exceed your income, this is called the debt trap. In fact, you have already fallen into it when the interest on loans or the overdraft is higher than any possible monthly savings amount.
If no reserves can be set aside from monthly income for unplanned expenses, it is high time to tackle financial rehabilitation and balance debts. Additional expenses quickly arise for which there are then no funds. Measures can be taken — also preventively — to avoid falling into a debt trap in the first place or to get out of it.
The goal of asset rehabilitation, or of balancing debts, is to keep the monthly burden as low as possible. This can be achieved not only with suitable and individual refinancing, but also by consolidating liabilities and by skillful negotiations with creditors.
However, favourable loan offers require not only good research but also a certain level of expertise to identify the best offer, because to find the ideal loan usually more than the effective interest rate must be compared.
Balancing debts - How do debts arise in the first place?
It is life circumstances, difficult times, habits, or simply the small and large weaknesses of individuals that pave the way into the debt trap. On average, an overindebted German citizen is in debt by an amount between 30,000 and 40,000 euros.
The main cause that often burdens people's fate, including financially, is job loss: for many this initially means a trip to the employment office. The loss of monthly earned income is compensated by benefits of around 60 percent of the previous net income — usually far too little to cover existing obligations. Unemployment is the most common reason for private individuals becoming overindebted.
Divorce or separation as a cause of debt
Lawyers, moving costs, maintenance payments; these are all new and additional expenses. Added to this are repayments for loans taken out jointly. Not all purchased goods can be sold, and so expenses in the new household often increase significantly after separations.
Property purchase and subsequently balancing debts
The anticipation of owning your own home leads many to overestimate their financial strength. New wishes quickly arise to improve life in the home. But already after a few years the first repairs and maintenance costs occur, which further strain an already tight budget. A loan often offers the only way to cover the costs incurred.
Illness and death as causes
If you are absent from work for a longer period, you do receive sick pay, but it is about 10 to 20 percent lower than the last net salary. In the event of illness, additional expenses for medication and treatments are incurred. Those who become unable to work, or are suddenly left alone through the loss of a partner and have not made provisions with insurance (occupational disability, life insurance), will usually not be able to avoid turning to social welfare.
Buying "on credit" often requires balancing debts
Comfortable shopping and easy financing — these are advertising buzzwords for all those small and large purchases. From refrigerators to mobile phones, almost everything can be financed with an instalment loan from the seller.
The overdraft
This is the account overdraft with which all the little everyday things that exceed the monthly budget are financed in no time. Expenses range from the phone bill to dining out, for which a high interest rate must be paid.
The overdraft should not be a long-term solution, because the high interest rates can become a considerable burden that is automatically deducted from incoming income monthly or quarterly.
Getting out of the debt trap and balancing debts
If expenses are permanently higher than income, the situation will not improve by itself. Often it gets worse, because many unplanned expenses cannot be postponed: damage to a car, a broken heating system, an additional utility bill. But even if there is no monthly room for manoeuvre or loan instalments can no longer be paid, there is a solution — and it does not always have to be personal bankruptcy.
With debt consolidation you can optimise your finances. To replace the overdraft, an instalment loan with a lower interest rate and a structured, adapted repayment agreement can be used. The instalment loan is also the first choice for unexpected expenses that lead to short-term financial bottlenecks. For problems with mortgage financing, however, cheaper refinancing of mortgage loans should be preferred where possible.
Instalment loans with long terms can also help bridge special expenses in mortgage financing. When planning finances, in addition to cheaper loan financing, it may also be possible to reach an agreement with creditors to defer instalment payments or reduce the loan amount.
Avoiding the worst
Avoiding deep existential cuts is the priority in private financial rehabilitation. All incoming bills must be checked for correctness and, in particular, all ongoing, essential obligations such as electricity, heating and maintenance must be paid immediately — because here serious legal and personal consequences threaten, which can quickly lead to even greater problems.
In addition to the loss of housing, there is also the threat of garnishment of goods, wages, life insurance policies and family savings contracts. Garnishments by the bailiff are also associated with high costs. Financial support can also come from friends and relatives, who can act as guarantors for loan agreements within a debt consolidation process — even without providing funds themselves.
The ideal loan for balancing debts
First, negotiations can be held with creditors. Existing obligations can sometimes be reduced or their repayment temporarily suspended. Any easing of the financial situation helps the debtor to meet at least part of their obligations.
Based on permanent monthly income, the prepared household budget shows the absolutely necessary expenses. Remaining amounts can then flow into loan repayment.
In mortgage financing, not only debt consolidations but also forward loans are options for balancing debts. Instalment loans with favourable effective interest rates and instalment amounts that are manageable for the borrower can, in some cases, be approved even with a negative Schufa report. However, restrictions must be expected.
Keeping a household budget brings transparency to monthly income and expenses. With some sacrifice and a well-thought-out refinancing, even high debts can be balanced. The reward: a fresh start — through no fault of your own.