How To Get Rid Of Loans

As everyone knows, bank interest on loans always exceeds deposit interest.

Therefore, if you suddenly have “extra” money, they should be spent on partial early repayment of loans. Getting rid of debt is usually one of the first financial goals.

I fully support this idea.

But it often happens that people turn to consultants, already entangled in debt, as in a web. Auto, household appliances, telephones, consumer vacation loans … Finally, a firm decision was made to embark on a path to financial recovery.

But it is impossible to repay all loans at once.

The question arises: what to grab at first? Financiers know several ways: SNOW COMA METHOD – debt repayment in order to increase the amount of debt.

First – small, then – ever larger. To use this algorithm, sort your debts by increasing amount.

For all debts except the smallest pay the minimum payments.

All additional funds are used to pay off the first debt.

After the first debt is paid off, the released funds are used to pay the second largest debt, etc. The snowball method is the most popular among financial advisors.

The method is simple and straightforward.

The list of debts is shrinking faster than with other methods, which for many is an additional psychological plus. Another thing is interesting: when choosing a loan, it is customary to consider the total overpayment.

Often it happens that a loan for a longer period has lower monthly payments, but a large total amount of overpayment.

Even if it’s more comfortable to pay a person every month, you don’t have to pay too much.

So it is here – the psychological effect of reducing the list of debts overlaps the main thing: the “snowball method” is the most non-optimal of all possible, judging by the total amount of payments.

You should choose: is it worth overpaying for the speculative opportunity to completely delete the debt for the phone from the balance sheet.

METHOD OF UNIFORM REPAYMENT – repayment of all debts at the same time in equal amounts.

Pay on all debts the minimum amount.

Divide extra funds by the number of debts. Reduce each debt by the resulting amount.

As soon as one of the loans is fully repaid, divide the additional funds into the new amount of debts and continue to act in the same way until all debts are fully repaid. This method has no special advantages. We do not concentrate on specific debts, but pay everything indiscriminately.

It turns out the average value of overpayments: most often we will pay less than using the “snowball”, but there are also much more profitable methods. METHOD OF SNOW AVALANCHE – repayment of debts in order to reduce interest rates.

First, the most expensive debts, then all the cheaper ones. Naturally, this does not mean the nominal rate on the loan, but the effective rate, i.e. taking into account all additional payments and commissions. Sort your debts by decreasing effective interest rate.

For all debts except the most expensive, pay the minimum payments.

All additional funds are used to pay off the first debt.

After the first debt is paid off, the released funds are used to pay the second most expensive loan, etc. The most logical of the “arithmetic” methods of debt repayment.

Compared with the “snowball method” and even repayment of loans, the “avalanche method” has a minimum total amount of payments.

The reason is simple: we minimize the deadlines for paying the largest interest. Psychological minus: if the most expensive debt is very large, then paying it off will take a lot of time.

And when there are no results for a long time, it is disappointing. The above methods are “arithmetic”, because their algorithms are simple and they use simple arithmetic.

As you probably already noticed, they do not use many real loan parameters: repayment periods, early repayment penalties, reduced monthly payments due to changes in loan amounts …

OPTIMIZATION METHOD – repayment of debts in order to minimize the total amount of payments on all loans (or the maturity of all loans), taking into account all restrictions.

In linear programming, there is a whole class of optimization problems, which, in particular, can be applied to repayment of loans.

The objective function is set – the minimum repayment amount or the minimum repayment period of all loans.

Additional conditions for loans: fines, the amount of minimum payments, interest, terms – are restrictions.

The result is a system of equations, the solution of which gives an optimal schedule for paying off debts by periods. It may well turn out to be more profitable to skip several payments on one debt and run into a fine, but pay another debt.

Simple formulas will not be here.

It is better to entrust such work to a specialist. However, for the vast majority of the population, “arithmetic” methods are enough. Get rid of debts competently! What to do if there is no way to pay a loan There are different situations in life.

Yesterday you received a loan from a bank, but today you cannot pay for it. What to do? First, take it easy.

Nothing terrible happened. 1. In no case do not hide from the Bank.

Verbally and subsequently in writing, inform the bank that you do not refuse to pay the loan, at the moment you do not have the opportunity (quit your job, got sick, etc.) 2. In writing to request changes to the terms of the loan agreement – this is called restructuring.

Restructuring of a loan is a change in the essential terms of a loan agreement (interest, loan terms, etc.) in the direction of improvement for the borrower.

3. The law is on your side.

And if you owe someone, then let your creditors sue you in the manner prescribed by law.

Your answer to creditors should be “I do not refuse to pay, but I have no money, so sue me.”



4. If you are in court, and even better in letters to the bank, that you do not refuse to pay, then none of the articles of the criminal code that banks and collectors like to scare (fraud, malicious evasion of paying a loan, causing property damage by fraud and abuse of trust) is not applicable to you!

5. On March 2, 2010, the Supreme Arbitration Court of the Russian Federation adopted a decision on the illegality of charging fines and penalties for overdue loans.

And in general, according to the civil code, fines must be assessed based on the Central Bank refinancing rate, which today is about 8% per year!

In addition, the amount of fines cannot exceed the amount of the loan!

Therefore, fines of 1% per day, which are usually charged by the Bank based on its internal provisions, are nothing more than a divorce for “suckers”.

6. The court is a way out for you, but for the bank I apologize for the expression “hemorrhoids”!

If the court decided something for the bank, the bank would immediately file a lawsuit against you, and would not send you horror letters and would not call you scaring the court and criminal liability!

7. If you don’t feel in yourself a pitchfork to deal with loan issues yourself, conclude an agreement with “anti-collectors”:

– The anti-collector will conclude an Assignment Agreement with you on the basis of which it will conduct any negotiations with your creditors and their representatives.

– Draw up and send letters to you to the Bank and collectors for you, write complaints to the Procurator and Rospotrebnadzor.

– Reduce fines and penalties by 80-90%.

– It will help to restructure your loan and get a deferment.

– Protects you from psychological and physical pressure.