Have you ever heard the term bad credit? Bad Credit is a situation where a customer is unable to pay off his debt in time. Bad loans have the potential to cause losses, both credit banks and credit recipients.
Causes of Bad Credit
Bad credit or sometimes referred to as Non Performing Loans (NPL), is one of the diseases that can hamper the development of the financial services sector. Bad credit can be caused by various factors, both internal and external factors.
In general, the internal factors that cause the occurrence of bad credit are irregularities in the implementation of credit procedures, weaknesses in credit analysis, bad faith of owners, managers, or bank employees, improper credit provision, the desire of banks to earn large income, weak administrative systems , information systems and bad credit supervision.
While the external factors that cause the occurrence of bad credit in general are the failure of the debtor’s business, the disaster of the debtor or the business activities of the debtor, as well as the decline in economic activity and high credit interest rates.
As we know, a credit card is a card that can be used as a substitute for cash, with a system of debt, which must be paid according to the amount at maturity. Like other debts that can experience congestion, credit card debt is also one of the most frequent bottlenecks. In general, people use credit cards to make payments for consumer goods. Therefore, it is often used uncontrollably, resulting in the money to pay is not available at maturity.
Internal and external factors that cause customers to not be able to pay credit cards, causing bad credit, including the habit of consumptive owners, uncontrolled desires to buy goods that are beyond their purchasing power, bad faith from credit card owners, lack of planning, and disaster that happened to the credit card owner.
Mortgages (Housing Loans)
Mortgages have become commonplace for people who want to buy a house. The need for mortgages is very high considering the increase in house prices is not proportional to the increase in people’s income. Therefore, mortgages are one of the tools to help people buy houses by installments. But what is very unfortunate is that sometimes people forget that there are factors that can cause people to be unable to pay mortgage payments and cause bad credit.
Internal and external factors that caused customers to be unable to pay mortgages, including lack of planning when buying a house, lack of knowledge and calculation of interest payments, high mortgage rates, reduced economic growth in the community, employee cuts where KPR recipients work, absence of emergency funds which is reserved, and there are financial disasters that occur in KPR recipients.
Settlement of Bad Credit: First Credit Card or Mortgage?
Before discussing whether to pay off a credit card or mortgage first, we must know that the settlement of bad credit can be achieved by being active in approaching the lender and the activity of the recipient of the credit to pay off the credit.
From the Credit Provider
From the credit provider, usually a bank or lending institution, settlement of bad credit can be reached by doing credit rescue. Rescue of credit can be done in several ways, including:
Rescheduling is a change in credit requirements that only concerns the payment schedule and credit period. Loans that obtain rescheduling facilities are only debtors who meet certain requirements, among others, the business of the debtor has the prospect of bouncing back and the debtor shows good faith
In the process of rescheduling , principal and interest arrears are summed (capitalized) and then rescheduled payments are made to create a separate rescheduling agreement
Return requirements ( reconditioning )
Return requirements are changes in part or all of the credit terms that are not limited to changes in the payment schedule, time period and other requirements insofar as it does not involve changes in the maximum credit balance.
In this reconditioning it can also be given to relief debtors in the form of partial interest arrears or termination of interest calculation for debtors who are honest, open and cooperative and their business can still potentially operate profitably but experience financial difficulties.
Changes in credit terms relating to the addition of bank funds, conversion of all or part of arrears of interest into the principal of a new loan or conversion of all or part of the credit to participation in the company, which can be acquired and with rescheduling or re-requirements.
From Credit Recipients
As someone who is responsible for borrowing money, you must have a good will to actively repay your debts. The question is if we have credit card debt and mortgage loans together, or other debts, which one is our priority?
In finance that Rhem Willer once shared, there are two strategies known to pay off debt. Both of these strategies can help you prioritize which debt is better to pay off first.
These two strategies are known as debt snowball strategies and debt stacking . The way the debt snowball strategy works is to rank the lowest remaining debt to the highest principal and ignore the amount of interest that must be paid. Debt snowball strategies suggest paying above all your bills or installments. Then focus on paying off debt with the smallest remaining debt principal.
Whereas the debt stacking strategy works by making the ranking from the highest to the lowest interest. The debt stacking strategy suggests paying a minimum of all your bills or installments. Then focus on paying off the debt with the biggest interest.
In addition to the above methods, the settlement of non-performing loans can also be through legal institutions. What is meant by legal institutions in this case is the Committee on State Receivables Affairs (PUPN) and the Directorate General of Receivables and State Auctions (DJPLN), through the Judiciary, and through Arbitration or Alternative Agency for Dispute Resolution. But it is far better, credit settlement is done without going through the institution, because if you have already gone through the institution, then you are already on the Rose Bank blacklist.
Start with Self Discipline
After knowing things about bad credit and how to pay off bad credit, the most important thing is that you start from now with discipline to pay off your credit / debt.
If you cannot discipline yourself, look for the person closest to you or a financial planner who can make you a discipline to pay it off from now on so that the losses incurred do not increase.
What about your experience with credit cards, mortgages and your debts? Give your comments and experience in the column below, thank you.