Become debt-free
It can happen to anyone to fall into the debt trap and it can happen very quickly. However, it takes longer to become debt-free again. Almost every household has been in debt at some point in the past. It starts with not paying or postponing the payment of a bill, continues with constant use of the overdraft facility on the current account, and can end with taking out a loan for a new car or a new kitchen.
Become debt-free - Why do debts arise in the first place?
Many people do not worry about these relatively small and manageable debts. They can usually be resolved quickly and you can become debt-free again soon. The situation is different, however, when a family or an individual loses track of unpaid bills, loans and overdrafts on the current account. If debts accumulate, it also becomes difficult to become debt-free.
Another major way to fall into the debt trap, even if you have always paid all your bills and monthly loan instalments, is if you suddenly become unemployed or, in the worst case, unable to work. Many do not think about what might happen if they suddenly cannot work anymore. If you become unemployed, you can look for a new job and then become debt-free again.
Other debt traps you need to overcome to become debt-free
If you become unable to work due to illness or an accident, it is not so easy to get out of debt. The fact is that if you no longer have the money you had in previous years, money becomes tight quickly and you may leave a bill unpaid more often. New bills for electricity, mobile phone costs or other items will also arrive the following month, so the debts for unpaid bills can accumulate quickly.
Another common debt trap is the separation of married couples. A house may have been purchased with mortgage financing during good times for the family. Of course both partners signed the mortgage and thus are jointly liable for the loan amount. After a few years, however, the partners may separate and disputes often arise over who may continue to live in the house and who should now cover the mortgage costs.
Often the instalments are then not paid for a long time, they accumulate and the lending institution then demands payment from one of the partners, who may not be able to pay.
Become debt-free - The options
There are many good options to become debt-free again. If you only have a few outstanding bills and the current account is overdrawn up to the overdraft limit for an extended period, you can quickly settle these debts by taking out a loan. This makes sense so that the creditors of the outstanding bills do not initiate court dunning procedures and you do not pay excessive interest on the overdraft.
When taking out a loan, the bank or lending institution checks the borrower's creditworthiness in advance, i.e. they check whether the borrower is able to pay the monthly instalments. For this purpose, payslips from recent months are often requested so that the lending institution can prepare a household budget for the debtor. The monthly instalments are then adjusted accordingly.
In this case, the loan amount should ideally cover the total of all outstanding bills as well as the used overdraft. Once the loan has been transferred to the borrower’s account, the bills are settled to become debt-free. You then only pay the monthly instalment to the lending institution. Of course, future bills must be paid promptly from incoming salary or unemployment benefits so that you do not fall into debt again.
Become debt-free with a guarantor
If, as a borrower, you cannot provide payslips or other regular monthly income when you want to take out a loan from a bank or lending institution, you still have the option of naming one or more guarantors.
With such a guarantee for a loan, the named guarantors assure the bank or lending institution that they will cover the instalment payments if the borrower is once unable to do so. Because of such a guarantee, job seekers or the unemployed can also receive a loan easily and become debt-free in the long run.
Become debt-free through debt consolidation
Debt consolidation is a good option when the debtor no longer has an overview of all their debts. It may be the case that you have several loans running, many outstanding bills are unpaid and dunning procedures may already have been initiated by various creditors.
If you only make small payments to different creditors, you will not get out of the debt trap. Interest and costs rise and the original claims are not even repaid.
Debt consolidation can help here. With the help of a debt counsellor or an employee of the lending institution, you should combine all existing debts. For this purpose, all outstanding bills, main claims in dunning proceedings, costs and interest as well as outstanding loan amounts must be added together.
A single loan is then taken out from a bank or lending institution for the resulting total amount. From that loan amount, all existing debts from outstanding bills, dunning proceedings and any existing loan amounts are paid off and replaced.
Become debt-free through debt consolidation: The advantages
The advantage of such debt consolidation is that you only have to make a single monthly payment for the consolidation loan, all other debts have been settled and you regain an overview of your debts. If you now pay the monthly instalments on time and do not incur new debts, you can become debt-free in a short time.
Debt consolidation is also sensible if you find out that the interest rates for your outdated mortgage financing, for example, are set far too high. Through consolidation you can obtain a cheaper mortgage and replace the old one entirely. In such a case you can also become debt-free faster and enjoy your home even more.