When money is tight, and your expenses are high, you may find yourself in a pickle with creditors. It’s often an inevitable part of life as you learn and progress – but when the creditors are more than just one or two, the problem seems to snowball a bit too fast. It’s impossible to keep up with, the phone never keeps quiet, and life seems so very unfair.

You can solve it all in one go, though, by learning how to communicate effectively with those dreaded people on the other end of the line and negotiate a good deal.

Here is a handful of the best advice from money experts out there, giving you and your finances some peace of mind at last.

Be honest to generate sympathy

So creditors may be unpopular, but they’re just regular folks like you and I. Pick up the phone, talk from the heart, and stick to your story – especially when you’re dealing with multiple creditors. They don’t want to hear about all the problems you’ve had the past year, of course, but a quick explanation will soften even the toughest creditor.

If you’ve been ill or away from work for a couple of months, it’s a good idea to make them aware of this. The same goes for any other problems you’ve had in the household lately, if your husband has been laid off, or if you’ve run into unexpected medical expenses.

Life is, after all, just life and creditors deal with it too. Check out entrepreneur.com for some top tips on how to convince them not to ruin your credit score.

Stay calm, by the way, and whatever you do, don’t lose your temper with them. To be overdramatic or show childish anger won’t get you anywhere when you’ve passed the age of ten.

Don’t be afraid to ask questions

Remember that this conversation is for your benefit as much as the people you owe money. When the ruthless creditor tells you that you may risk losing your house or be sued, try not to run away from it all but ask specific questions instead.

When can you expect further action to be taken? Is it a good idea to find a personal loan to cover the most pressing expenses? When can you expect the money to be withdrawn from your account? You can have a look at personalloan.co to have a backup handy in case another loan may keep you from being sued.

Some of the threats they make may be illegal, by the way, so ask questions and take note of their answers for your own record.

Understand your situation

Do yourself a massive favor and be prepared the next time they ring. When you know how much you’re able to afford, it becomes a lot easier to keep up with the negotiations and find a realistic solution – otherwise, you may end up in the same situation in a few months.

Dealing with creditors is never much fun, but it’s inevitable when you’d like to put the past behind you. Get it over with as soon as possible, improve your credit score, and start to live within your means again.

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Debt management is more personal than you might think.

Put simply: there is no “tried and true” method of fixing a debt problem you might have. Everyone is different; different ways of coping work for different people. What helps one person to clear their debts in a short amount of time can leave another flailing and confused. Understanding that you have to find your way to debt management is key to understanding how to unpick the tangle of your personal finances.

Below, we’ll discuss four different ways you can tackle your debt problems. Read through them and see which might work well for you.

1. Redirecting Your Income

If you feel you are able to cut back on luxuries — such as entertainment costs — in your monthly budget and redirect your income to debt repayment, then you should be able to make a significant dent into your debt. When you have paid all essential bills and allowed yourself a small amount to live on, all your other finances should be directed toward debt repayment. It’s tough, but if you can embrace the necessary frugality, then it will work. You can find some tips about living more frugally on morningchores.com to help you along the way.

2. Debt Consolidation

Debt consolidation as discussed on consolidatingdebt.co is a rather simple process, which may be worth undertaking if you are struggling with managing various different credit accounts. The process tends to involve taking out a loan, with which you then pay off all your existing debts — leaving you with one, manageable monthly payment instead. This can also save you money spent on interest repayments, too. If you struggle to keep a handle on all the different payments you have to make, this might be the best choice for you.

3. Negotiating With Creditors

If you want to stave off bankruptcy, then negotiating with creditors is an absolute must. This means making phone calls or writing letters, explaining your situation and asking for their assistance in putting together a management plan that can help you pay off your debts quicker. There’s no doubt that talking to creditors is nerve-wracking, but you will likely find they are more understanding than you might otherwise expect.

4. Making Minimum Payments

Making minimum payments to your debts and nothing more might not sound like a debt management strategy, but it can be if you do it right. If you just make minimum payments and spend the rest of your income on whatever you please, then no, that’s not the best idea in the world. However, if you use the money you save to build an emergency fund — and thus reduce your reliance on credit in the future — then this could be a sound financial move. Just ensure that when you have got a decent emergency fund built up, you then begin paying back more than minimum payments on your debts.

When you find the strategy that works for you, then your way to a clearer financial future should become much more obvious.

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Looks like everything is going to be fine, after nine awkward months of unemployment, you finally land a job. It is more than twenty miles away but it’s a job, and it pays a living wage. After more than a year you feel that both you and your partner can breathe, start to live, and start to pay back the loans that helped to start your new found family life, but before the future beckons  let’s look back.

Before It Came Crashing Down

It may not have been a whirlwind romance, but more of a steady, progressive and eventual marriage, where you both wanted it, and it just happened.  The wedding might have took place in 2006 just one year before the financial crash, where mortgage loans were cheap and plentiful and taking out a 130% mortgage (full cost of the flat, plus 30% for the wedding and holiday), was all the rage.

Both you and your partner may have decided on a brand spanking new flat and furniture. Those two months of choosing and buying might well have been some of the most blissful times you ever had. Not fully understanding the intricate and confusing world of loans it would have been easy to buy and buy more. You were both working you and could afford it. What first started out as an anxious application for a loan application, with the fear of rejection, soon becomes your right to have more credit and loans.

Creditors make this first and most dangerous mistake. When any loan becomes a right, the granting of finance becomes more important than the object you need and your long-term financial situation. Here is how the banks (used to and now) decide to grant you an application.

Banks, Finance Companies and Your Loans

Some members of society still hold a very old fashion view of banks, finance companies and loans in general. Many people have a picture in their mind of the loans clerk reading and sorting out loan applications that come in by post, the clerk deciding the simple ones and passing the more difficult to senior staff. Well a long time ago this is what happened, but not now. In the computer age, when you or your partner applies for loans, it is very rare for any human interaction to occur in the bank’s decision to grant one.

Deciding to Grant You a Loan

The financial companies have all developed computer models. The computer models, not people decide who is approved and for how much. One of their most important tools are the credit reference agencies, they keep a record of all the loans and utilities that the public apply for and how they use those loans, they then share this information with the lender. Since the credit crisis, their searches (as referred to) can have frightening outcomes. If information is wrong, it can say you have defaulted on a loan, when you have not, then it becomes very difficult to obtain credit. To understand how this can affect people, check out the book by Frank Kafka “The Trial” (when the authorities hold all the power). However, the opposite happens when the computers say yes to your loan application, you suddenly have a good credit standing and everyone wants to give you loans. For most of us, as long as we keep in employment and our circumstances do not radically change, it can be fine to take out a loan, as you will more likely be able to pay it back. However, if you have the bad luck to lose your job, the time until a new one arrives can be very harsh. In this case, loans can help dramatically in the short term, though like anything they are best to adopt with moderation.

Wendy Derbyshire is freelance finance writer and guru. She has a deep understanding of the credit market and believes when used sparingly, loans can help propel people to financial stability.

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How much will you pay in interest this year?  Few borrowers realise the implications of compound interest on their debt when they sign on the dotted line.  While a few percentage points may seem like a trivial technicality, the interest on your loan is compounding every day– and so is your debt.

Simple versus Compound Interest Calculations

Simple interest accrues only on your principal, which is the actual amount that you have borrowed from a lender, be it via a credit card or a home loan.  In simple interest calculations, your interest rate is percentage of the principal on your debt.  An APR, or Annual Interest Rate, of 15% on a principal of $100 would accrue $15 of interest charges over the life of the loan in a simple interest calculation.

Compound interest involves a continual recalculation of the amount that you owe the lender.  For the $100 that you charged on a credit card with an APR of 15%, your daily interest rate will be approximately 0.041%.  This is because the amount of interest will compound, or be recalculated, based on your balance each day.  On Day 1, you will accrue $0.41 in interest charges, bringing your new balance to $100.41.  On Day 2, your interest will be calculated based on a balance of $100.41 and you will accrue an additional 42 cents of debt, bringing your new amount owed to $100.83.  This will continue each day until the balance is paid in full.

While most credit card companies and similar lenders offer a grace period in which the borrower may pay the balance in full to avoid any interest charges, making only the minimum required payment means that the remaining balance will begin to accrue interest immediately.

The Exponential Growth of Your Debt

Almost all lenders use compound interest calculations when you borrow money.  This has profound implications on your debt.  While the initial 41 cents of interest on your $100 charge seems innocuous enough, over the course of a year your debt will grow exponentially.  If you make a minimum payment of $10 each month, it will take you 11 months to pay down your debt, costing a total of $107.50.  Now consider if you miss a payment and have late penalties applied to your account, causing you to take months longer to pay the balance in full.  It isn’t hard to see why several thousand dollars or more of debt would quickly become an insurmountable burden.

In November 2012, the average credit card debt per borrower in the US was almost $5,000.  Student loan debt for undergraduates was a staggering $27,000 after leaving college, with professional students owing over $79,000.  Compound interest rates will cause the debts to soar even higher, with many borrowers ultimately paying tens of thousands of dollars more than their principal.

Stop the Climb!  Solutions to Help You Get Out of Debt

The key to limiting the growth of your debt is controlling the interest compounding on your debt. Debt consolidation loans offer a means to do just that.  By consolidating all of your debt into one loan, you will pay interest on only one loan.  More of your monthly payment will pay off the principal, allowing you to pay down your debt more quickly.

A debt consolidation loan is not a magic bullet.  A realistic budget and the discipline to stick to it are crucial parts of any debt elimination plan.  But they do offer a way to slow the exponential growth caused by compound interest, allowing you to regain control of your finances.  Getting out of debt is a difficult undertaking; debt consolidation can simplify the process.

Katie Latchford is a freelance writer who has a keen interest in financial matters such as how to ease your financial situation by applying for a debt consolidation loan to help you to manage your debt more effectively.

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Some of us work hard, pay our dues, but are still flat broke at the end of the month. Then there are those who seem to cruise through life and they are always doing the things we cannot afford to, despite the fact that they have a worse job and yet still drive a more expensive car than that which we drive. It is okay to feel aggrieved, but when you realise those people are bouncing from one loan to another and are rapidly reducing their spending power, it is also okay to feel a little happier. The problem is that those kinds of people always seem to manage to scrape their way out of a financial mess right at the last minute, but is that any way to live your life.

What is a Good Reason?

We all know the answer, nobody wants to dread letters coming through the door because they don’t know if they are going to be able to pay them or not, that’s why it’s important to make sure we use loans responsibly. That doesn’t mean we shouldn’t get ridiculously in debt for a family holiday to Cancun, it just means we shouldn’t do it twice in a year, although many people do just that. On a less serious note, some people have come up with some crazy reasons for loans that are definitely worth sharing.

Top Five Mad Loan Reasons

1. I want to buy a pet snake, Spider, Monkey or other exotic animal

Fair enough, exotic animals need the correct environment and a great deal of care. Bills at the vets are liable to run into thousands if animals lack proper care, but borrowing a few thousand pounds to kit out a spare room like a Brazilian rainforest is a little eccentric. It’s a little more worrying when there is not spare room and the person states that they live in a one-bedroom flat.

2. A loan for a Friend

One sure way to lose friends is to lend them money. Well, that’s not strictly true. Lending the money is fine; it’s asking them to make repayments that often cause the arguments. If someone cannot get a loan, it’s usually for a reason so you are well advised to leave them to deal with their own problems. Things come to a head when repayments are late and the friend is out on the town every weekend.

3. Borrowing to Invest

In all fairness, most businesses borrow to invest, but that is a lot different from someone taking out a personal loan to invest in a business venture or worse, the stock market. There is no safe investment out there that provides a better income than the cost of a loan; otherwise, the loan companies would put their money into those investments instead of risking it with customers.

4. A loan to pay off  a loan

This is not to be confused with a debt consolidation loan, which in certain circumstances is very useful. The type of loan that is not useful is the kind that people use to cover missed payments, late payments or any other short-term problem. People are far better off when they speak to the company they have a loan with and explain the situation.

5. A loan for Cosmetic Surgery

This is a new one, but both men and women are becoming so conscious of their appearance, they are prepared to take out huge loans to achieve a certain look. The problem is they are rarely satisfied even after spending thousands and of course, the cost rises even higher when interest is on top. Most plastic surgeons offer finance solutions to customers and this is nice little side earner for the practice who already rakes it in with the surgery costs.

Most people are not silly enough to get themselves in a great deal of debt because of something as stupid as the five reasons here, but we are all guilty of putting the odd thing on a credit card when we know it’s not a necessary purchase. The important thing to do is make sure you stay within your means. In other words, live the life you can afford to live and avoid plastic surgery, exotic pets and high maintenance friends if you want to protect your credit record.

William Bancs is a writer who enjoys blogging about his financial experiences and often writes interesting articles to offer advice to help loan companies communicate better with customers.

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