Nowadays it is very common to finance necessary purchases by paying in installments. A washing machine is required in every household. If the car is broken, a new vehicle is needed to get to work. And then a new TV would be nice too. The problem with buying in installments is that it easily leads to a debt trap.
Lots of small amounts make big sums
With the many attractive offers on the market, a small rate for the new television set appears to be affordable, of course. It should not be forgotten, however, that recurring monthly expenses are incurred. These include rent, energy costs and much more. After all, the cost of living has to be paid. Regular monthly payments alone often result in a sum that no longer offers a lot of scope.
The unforeseen is always a problem
Anyone who makes installment purchases in addition to their current obligations always has an equivalent in return. This could be sold in an emergency, but the reality is different. Sales of used items usually make little money. A new television is already considered used when it is unpacked and installed at home. In the current life situation there may also be enough money. But when the hire purchase becomes a debt trap, it is mostly through things that could not have been foreseen. For example, defective household appliances or major repairs to the car. In the worst case, you lose your job and it takes far too long to find a new one. After all, unemployment benefit is just a little more than half of your usual net income.
Apply for your debt rescheduling now!
Debt rescheduling if the installments are too high
The term debt restructuring is often used when it comes to debt and debt traps. Debt restructuring is also often the most sensible solution. If the installment payments grow over your head along with your monthly payments for your living expenses, you should first sit down and start planning. What is your income? Is there any other income? In addition, you should of course write down all payment obligations. For what exactly do you have to pay what rate and how much?
If you add up the individual amounts, you will get the total. That would be the amount you would have to apply to your bank for a debt rescheduling loan. The advantage: you then only have one rate. This may well be lower than the total rates you are currently paying. This creates a certain financial leeway again. But even when planning a debt rescheduling, you should under no circumstances neglect all other ongoing costs such as insurance, electricity and all other ongoing costs.
If you are aiming for debt restructuring, you should adjust the planning to your current financial situation. After you have made your own financial planning, you should talk to your house bank about debt restructuring. As long as you do not already have negative entries in the Credit Bureau, every bank is usually ready to approve debt rescheduling loans.
In most cases, rescheduling will save you a lot of money. If you have to pay off a debt rescheduling loan, this naturally includes interest. However, you also pay interest on your many, small installment payments. A closer look often reveals that these interest rates are even comparatively high. If all installment payment contracts are now repaid with a one-off payment, you save interest on each individual contract.
Put the red pencil on!
That is also part of it when the hire purchase becomes a debt trap. Some contracts are simply concluded because you consider them necessary. This can be the case with a cell phone contract, for example. A prepaid cell phone is a way to save monthly charges, provided the current contract can be canceled. If not, you should consider terminating the contract as soon as possible.
Insurance companies are also very often points at which you can use the red pencil in your financial planning. Liability for the car is inevitable. This also applies to all other insurances that are essential. You should check your contracts and consider whether you still need one or the other contract at all. Some contracts are out of date after a few years. There may be the same contract now, but on better terms. Often you can save a lot of money, especially with regard to outdated insurance contracts.
The worst thing that can happen to a person who has fallen into the installment buying debt trap is insolvency. This does not mean temporary insolvency, but the creditors’ claims can no longer be serviced in the long term. Please make an appointment immediately with a debt counseling service! The current insolvency need not mean that you now have to apply for personal bankruptcy. In many cases it is possible through a neutral debt advisor to agree on new installment payments or to make comparisons.
If you have lost the overview, the debt counselor can draw up a budget and a repayment plan with you. Personal bankruptcy is always the last option to get your finances in order. You should only decide for this when all other plans have failed.