Debt Rewriting – what is it and get rid of debt?
Posted On May 2, 2020
Nowadays it is getting easier to get a loan or a cash loan. Financial institutions no longer require so many formalities and their conditions are usually not excessive. On the one hand, it provides the customer with high comfort and allows for quick repair of the home budget. On the other hand, this situation can raise many threats, among which we can mention recrediting. What exactly is re-crediting and how to deal with this problem?
What is debt re-writing – clarifying the concept
In the beginning, it is worth mentioning that there is no formal definition explaining the meaning of the concept of re-writing. Therefore, the term is used informally and means a situation in which the customer has too many liabilities (loans or credits), and the monthly debt repayment costs exceed half of his monthly net earnings.
Therefore, the credit transfer is connected with a large number of repaid loans and borrowings at the same time, but the amount of debt does not have to be high at all. The most important thing is that various commitments are made at different times and on different conditions, which overwhelms the client’s home budget.
In turn, we are talking about a significant burden on the budget when, after paying off all liabilities to financial institutions (banks or loan companies), the borrower has difficulty covering the costs of ordinary life. Speech here, among others on housing maintenance, public transport expenses or paying for a telephone subscription.
Consequences of re-crediting
Many people who are overpredicted try to take out more loans and pay off their debts for the cash received. Unfortunately, such action has many consequences, including falling into the so-called debt spiral.
In addition, the banks are very unfavorable at people who are being redirected. In a situation where the repayment of all liabilities takes half or even more of the client’s monthly income, he loses the appropriate creditworthiness necessary to receive the loan.
Loan companies operating in the non-banking sector look at such people with a slightly more favorable eye. Some of them grant loans to indebted persons without adequate creditworthiness. However, it should be remembered that in such a situation the client must be prepared for the high costs associated with taking an online loan. In addition, such institutions also require a loan guarantor who will repay the liability when the borrower fails to do so.
Debt Rewriting – what to do in this situation?
One of the worst decisions that can be made by those struggling with redirection is to take another loan. This solution will only lead to falling into a credit spiral, causing a lot of stress and nerves.
This does not mean, however, that people who are over credited have no choice. Below are three effective ways to help with debt.
Loan refinancing – method 1
One option is to refinance the loan, which allows you to extend the deadline for repayment. By refinancing a loan, be it at a non-bank institution or at a bank, the customer incurs another liability, the sum of which is intended to pay off the previous debt. Finally, the borrower has a new loan with a new repayment date. Due to the extended payback period, the customer will have more time to collect the cash needed to pay the debt.
How does it look in practice? First of all, people who decide to refinance a loan must inform their lender in advance. Importantly, a financial institution usually finds a refinancing loan and completes all formalities, so that the customer does not have to take almost any action.
However, it should be borne in mind that this solution has its drawbacks. A customer who decides to refinance a loan is obliged to pay a specific, often high, fee indicated by the lender.
Credit consolidation – method 3
Another equally good solution is a consolidation of payday loans (including loans). Simply put, it’s a combination of several, usually very different commitments into one. In this way, the customer will only have one loan to pay back with a lower installment and repayment in one bank. Thanks to this, the borrower can stabilize his financial situation and repair his home budget.
Importantly, we can distinguish two types of loan consolidation, namely cash loan and mortgage consolidation. The first of these can be obtained for a shorter period and a smaller amount – in this case, however, the bank does not require additional security. The second one is granted for a longer period, with a lower interest rate for higher sums, but with the necessity of collateral in the form of a mortgage.
Debt spiral – how to avoid it when borrowing?
People who decide to make a commitment should carefully analyze their needs and financial capabilities. Thanks to this they will know exactly how much they can borrow. In this way, they will avoid severe consequences, for example falling into debt.
First of all, it’s worth taking a closer look at your home budget. When calculating finances, both income and expenses (permanent and one-off) should be taken into account. Fixed expenditure includes, among others rent for the flat, telephone fee or weekly grocery shopping. One-off expenses are, for example, unexpected visits to the doctor. Then, after calculating all expenses, compare them with the income you receive. In this way, we can easily adapt the loan to current financial possibilities.