Debt reduction
Every year more than 150,000 people in Germany have to file for personal bankruptcy due to over-indebtedness and subsequently reduce these debts.
Debts arise when someone can no longer meet their payment obligations. The reasons for this can be quite varied and do not always have to lie in uncontrolled spending. Reducing debt, however, is a necessary process to bring the household finances back into balance.
What are reasons for needing to reduce debts?
The main reason for debts is a sudden onset of unemployment. Many people have built up a standard of living over the years that is difficult to give up and cannot be changed overnight.
Contracts for mobile phones, insurance or the apartment often require a notice period. This means that unemployment benefits very quickly may not be enough to cover monthly costs, and the first debts begin to accumulate. Those who want to reduce these debts need help.
A separation or the death of a partner is also a major debt trap. A salary is lost and monthly expenses can no longer be fully covered. The same applies to a long illness that comes with sick pay and may ultimately even cost the previously secure job. Only then does uneconomic household management come into play as a reason for debt. Young people are often affected by this, who simply live beyond their means and do not think about how the phone bill and mail-order purchases will be paid. Reducing debt is often not easy in such cases.
But guarantees, unfavorable mortgage financing and an accident can also lead to debts. Once debts have accumulated, it is very important not to wait too long before taking steps to reduce them. Ideally this is done promptly in order to avert as many negative consequences as possible. Debts are not a trivial matter and can, in the worst case, accompany the debtor for an entire lifetime.
Reducing debts with a loan
Often one has debts with several creditors. Each creditor asserts their own claims and naturally wants their money as quickly as possible. If you hope to satisfy every creditor with small installments, you are mistaken. Each creditor will try to claim as much money as possible from the debtor. Interest, dunning fees and possibly even the costs for a debt collection agency can add up; money that must first be raised if you want to reduce your debts.
Therefore it is rather unfavorable to try to reach an agreement with each individual creditor. It is much better to consolidate the debts and settle them with the help of a loan. That way you have only one creditor, which makes repayment significantly easier.
Reducing debts through debt consolidation
Such a consolidation of debts, i.e. reducing debts, is referred to in financial circles as debt consolidation. The aim of consolidation is to give debtors the opportunity not only to get the debts under control but also to actually pay them off.
To take out a loan for consolidation when reducing debts requires a bit of preparatory work. The first step is to determine the exact amount of the debts. It is advisable to contact the creditors and request the exact outstanding balances. Because of the interest accruing monthly, these amounts can change quickly.
Once you know the current status of the debts, a statement of monthly income and expenses must be prepared. Only in this way can it be determined how much money remains for the installments that must be used to service the consolidation loan. Once this is done and the right loan has been found, the loan can be signed.
Within a few days the money will be transferred and the creditors can be paid. Care should be taken not to accumulate new debts, otherwise a cycle can develop from which it is difficult to break free.
Reducing debts with small installments
Debt consolidation is very well suited for reducing debts. By combining the debts, the usually quite high interest and fees charged by creditors are eliminated. This saves not only a lot of money but also hassle. You can agree on a small installment that comes with an affordable interest rate. The installment is chosen so that it is manageable over the entire term.
It is also ensured that even with the loan there is still enough room for special expenses. A holiday should still be possible at times or a car repair. And even if repayment takes several years: you can reduce your debts—step by step. Debts are not only a financial burden but also a psychological one. Debt consolidation is therefore a good way to quickly get debts under control.