Assets and Liabilities
Assets are anything that can be sold and is worth at least some money: an apartment, a car, a house in the country, deposits, stocks, bonds, etc. Assets may or may not bring returns. You can put up with this (as in the case of the apartment you live in) or increase the return on assets (as is the case with finding better investments). Your debts, loans, credit cards, and other financial obligations are liabilities. You can’t sell them and get cash for them. The more liabilities you have (in the form of consumer loans), the closer you are to bankruptcy.
Loan Repayment Rules
So you have a clearer picture of all financial obligations. You may close some of them with the sale of assets. If this is not possible, let’s see what can be done with loans using various ways to get rid of debt. Several options are available here.
Snow avalanche method
The Snow Avalanche Method is the most accessible and understandable way. Its essence is to be the first to close the debt with the maximum interest rate; that is, you should direct all additional money first to its repayment. Then, focus on the next highest-rate loan and close it. Thus, we first repay the most expensive loans to service. Economically, this is the most efficient way.
Snowball method
It consists of paying off loans from the smallest in terms of debt to the largest. When the minimum debt is closed, the amount intended for payments begins to be used to repay the following loan. Here’s what you need to do.
Sort the debts by the total debt amount – from minimum to maximum. This sorting of obligations is a different feature: we sort not by interest rate but by debt.
- Start making the lowest possible payment on each debt.
- Estimate how much you can contribute above the minimum payment on the first, smallest debt.
- Start paying off your first loan by making the minimum required payment plus additional money until you pay off the entire debt.
As soon as the first debt is repaid, add the additional money (the minimum and other payments you made paying off the first debt) to the minimum payment on the second debt and start paying off the second debt on the list.
Refinancing
The procedure allows you to combine several loans. Refinancing can be done at the bank where you took one of the loans (or opened a credit card) or at any other that agrees to give you a new loan.
Restructuring
Restructuring differs from refinancing in that the procedure concerns one loan and takes place in the same bank with which you already have a valid agreement. It is possible if:
- Your income has decreased significantly – for example, you have lost your job, or your salary has been reduced
- You went on maternity leave or paternity leave
- You have lost your ability to work and cannot earn money due to an injury or illness.
Bankruptcy
Bankruptcy is the incapacity of the debtor recognized by the court to fully satisfy the requirements of creditors for monetary obligations and mandatory payments.
As a borrower, you can initiate a procedure if:
- You know that you will not be able to fulfill your obligations on time (lose your job, become seriously ill, etc.), regardless of the amount
- The main advantage of bankruptcy to eliminate the debt burden is writing off all debts by selling the property. You would not have to pay the remaining debt even if the proceeds from the sale of the property were not enough to pay all the creditors’ claims. At the same time, creditors cannot demand the debtor pay more than he owes. They cannot take only housing and necessities.
Collectors
A long delay on a loan can lead to the bank’s transfer of the debt to a collection agency. At the same time, fines and penalties will continue to accrue for late payments on the loan.
If you still have to communicate with collectors, then remember that when speaking with a debtor, the law requires them to:
- Introduce yourself (name the surname and name, organization and its contacts)
- Confirm their authority by submitting documents on the transfer of debt
- In no case use violent actions against the borrower
Collectors can call you twice a week and at a strictly allotted time. Disturbing debtors are prohibited from 8:00 PM to 8:00 AM on weekdays only.
Most importantly, the faster you pay off your loan debt, the quicker you will get rid of the obsessive attention of debt collectors.
Total
Let us briefly formulate the main ideas of the article. It is necessary to understand that you can manage your assets and liabilities.
To do this, they must first be known and taken into account.
If there are assets, the yield is lower than the loan’s interest; you can use them to pay off liabilities (except for the financial security reserve fund).
There are several options for optimizing the credit burden or getting rid of debts: early repayment, refinancing, restructuring, or bankruptcy.
Communication with collectors must be within the framework of the law, according to which they can call you no more than twice a week and at a strictly allotted time.
Do not fall for the bait of fraudulent lawyers who offer you to get rid of all debts for 30-50% of their value.
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