Debt is part of life for most of us, but there are times when it becomes powerful and unmanageable. It is important that you face the situation and do a complete audit of your debt. Try to find ways to reorganize your budget to make sure you’re not left on your payments. If you’re having trouble, be sure to ask for a counselor or a debt counseling charity.
Consider your debt
1 Evaluate the situation. The first step to facing your debt problem is to make an honest valuation of all your outstanding debts and the amount they charge you. Start writing down all the debt you have and try to include as much information as possible. You will not be able to progress until you have a clear picture of your financial situation.
- Pay attention to key information, including interest rates, principal, monthly payments and any guarantee offered to guarantee the loan.
- It can be a stressful and difficult experience, but it is essential that you do it.
- Once you have all this information at hand, you can understand your problem and determine a way forward.
- 2 Determine your guaranteed and unsecured debt. Once you have compiled a list of all your debts, make certain judgments about the most important and most urgent debt. Start by determining which debts are guaranteed and what not. This is important because it shows you what debt you can lead to quickly losing property, such as your home.
- Guaranteed debt is the one linked to a specific asset, such as your home or your car. If he fails to meet his payments, the debtor may lose his right to settle the guarantee he has filed to secure a loan.
- Unsecured debts are those that are not linked to assets and usually include things like credit card debt, health insurance accounts, and single signature loans.
- 3 Prioritize your debt. The next step is to review and prioritize your outstanding debt. Although all your debts are important, some are more important than others. The most important are usually those that can lead to the loss of your assets, such as your home, your car and other physical property. These debts may include any rent that you owe, mortgage payments, local or state taxes, and utility bills that you did not pay.
- Renting and utilities are owed when you’re late in your payments. This can result in you being cut off from public services and losing your home so that you should treat it as a priority.
- Lower priority debts include credit card accounts, some installments or rent-to-buy arrangements, bank overdrafts, family loans, or other unsecured debts.
- If you prioritize your debt, look for those with the highest interest rates. If you can pay the debts that pay the highest interest rates quickly, you will get rid of these costs and get a better chance of handling your other debts.
- If you have savings, use them to pay expensive debt. The interest you will pay for the debt will be higher than you can get in your savings. However, be careful not to spend all of your savings, as this will leave out emergencies that may be needed in the future.
- It is common for companies that offer lower priority debt to be more aggressive in their collection practices so be aware and keep your focus on the highest priority debt.
- 4 It determines whether you are in a debt crisis or not. If you have determined all your debts, you should judge early on how serious your problem is. There is no definite definition of “debt crisis” but to determine your position, ask yourself two questions. First, do you have trouble paying basic expenses to cover your debt? This can be mortgage payments, minimum credit card payments and utility bills.
- Then ask yourself whether your debt (excluding your mortgage and loan payments on your car) is greater than your annual income after tax.
- If the answer to any of these questions is yes, your debt problem can be very serious and you should immediately make an appointment with a non-profit debtor or credit counselor.
- Remember, no matter how big your debt is, the important thing is whether you can fix it or not.
- 5 Don’t get expensive loans. For many, debt can become an endless cycle that gets worse over time. Often, if you have an expensive loan amount, you can be pressured or encouraged to get more loans to pay off existing loans. This is especially common with the companies of loans until the day of payment. You need to add more expensive debt at all times. In some cases, you can get a cheap loan with low credit union rates.
- This can help you pay for expensive debt and replace it with affordable debt. However, talk to an independent credit counselor before doing so.
- Be wary of debt consolidation loans. These loans may require you to offer your home as collateral and offer no collateral. However, a debt consolidation loan can be beneficial if you work with a respected borrower and can get a lower interest rate than you currently pay. Just be careful not to add more debt.
Graph a way forward
1 Developing a Budget Once you have a clear picture of all your debts, the next step is to determine how much you can pay each month. Write a detailed budget that covers all your income and expenses and determines how much money you have available for your debt. Think about how you can reduce your expenses by saving and reducing unnecessary expenses. If possible, consider how you can increase your income as well.
- Once you have a budget, you need to get a realistic and affordable figure that you can set aside each month to pay off your debt.
- Join your priority money list and see how much you can pay.
- 2 Contact your creditors. Now you need to contact your creditors to discuss possible ways to restructure and reorganize your debt. If you can give them detailed information on how much you can pay each month, you can agree on the terms of your loans. For example, you can agree with a new payment plan that reduces the amount you pay per month, but spreads the payments over a longer period.
- It is important that you can reach an agreement with most of your most problematic creditors. The other debts will be easier to settle if you take care of these creditors and reduce the payments you need to make.
- 3 Access to credit counseling. If you were unable to negotiate new payment plans, or if all the information overwhelmed you, make sure you make an appointment with a credit counselor or nonprofit debt counseling organization. There are a number of charities and other non-profit organizations that specialize in providing free and impartial advice to people who have financial difficulties. Here’s what steps you can take and how to deal with creditors.
- There is lots of useful information online, but always try to get a meeting personally.
- Many universities, military bases and government branches have non-profit credit counseling schemes.
- Credit unions, civil service offices and housing authorities can also help.
- Make sure you visit a respected organization with a solid background. “profitable” does not always mean “free”.
- 4 Consider a debt management plan. In some cases, a credit counselor may suggest registering for a debt management plan. The advisor will rather suggest it if you cannot pay your debt. The plans usually involve paying money to the counseling organization, which will then pay you different debts without guarantee.
- Think carefully about this and make sure you talk to your creditors.
- Do this only if an adviser has thoroughly reviewed your finances.
- In most cases, a counselor should give you advice on the budgets and management of your debt without paying attention to one of these plans.
- 5 Try the debt account. The debt settlement programs involve working with a company (usually a for-profit company) to pay your creditors a set amount less than you owe. The creditors will only do this if they believe it is a better result than to prosecute you so that you will pay them in the future. The company will pay the payment, but must pay a specific amount of money for a long time to a savings account. It can help to pay off your debt, but it can be a risky approach.
- If you consider it, make sure you can make the monthly payments indefinitely.
- Keep in mind that your creditors are not obliged to make an agreement with the debtor.
- Debt settlement companies usually encourage you to pay them instead of your creditors. As a result, your credit rating will suffer and there may be other consequences.
- If you do not pay your debt, you may incur additional fees and charges that you would not incur if you paid the creditor directly.
- There are many scams related to debt settlement and not all companies will keep their promises.
- Before enrolling, the company is investigating a lot and always getting free and unbiased advice from a nonprofit credit counseling organization.
- 6 Investigate debt consolidation. You can reduce the cost of your debt by consolidating it against a new credit card, such as reforming your home. These plans will generally use your home as collateral, so if your home is not at risk for your debt, think carefully if you put it at risk.
- Beware of consolidation schemes with variable rates. What could be cheaper at the beginning could be more expensive if the rate rose.
- 7 Consider bankruptcy. If your debt is completely unreliable and you can’t get a way to move forward, it’s time to consider declaring bankruptcy. This is an important decision with lasting consequences that should not be taken lightly. Bankruptcy can make it very difficult to gain access to credit or to buy a home in the future.
- In general, you can declare bankruptcy in two ways, depending on where you live, one of which is simpler and faster and which results in the elimination of most of your debts. But not everyone may qualify for this type of bankruptcy.
- Bankruptcy should in most cases only be considered a last resort.
- In some cases, bankruptcy can give a new start to a person.
- Discuss your options in detail with a credit counselor and a lawyer specializing in bankruptcy and credit problems before making decisions.
Handle emotionally with debt
1 Recognize your debt problem. A general reaction is even to blame for the seriousness of the situation. The debt can be something difficult to handle emotionally, but it is essential that you recognize the situation and its impact on you. There is a growing number of evidence showing the impact of debt on stress and mental health. So it’s not something you should ignore.
- Denying your debt can make the situation worse and slow down your response.
- Don’t wait for an important event, such as an exclusion notice, to acknowledge your debt problems.
- 2 Talk to someone about your stress regarding your debt. Debt can have a great psychological impact on you, so try to talk to someone about your situation. Talking to friends or family can be difficult, so seek the help of a therapist if your stress on your debt causes you real trouble. This is an important part of recognizing the situation. Only when you recognize your financial situation can you take the necessary steps to deal with it.
- Always seek impartial advice from a credit counselor, but do not neglect the psychological impact of the debt.
- 3 Take measures to feel more positive. It’s quite normal to be anxious and stressed over a difficult financial situation, but you can take steps to make you feel more positive. Of course, it is important to work with debt and come financially, essential, but you can also try to improve your spirits. It can even help to handle debt and focus on finding a way forward.
- Try to stay active. Get lots of exercise, but also spend time with your friends and do daily tasks.
- View your fears by getting advice on debt and accepting the problem.
- Try not to drink much. Some people use alcohol to deal with stress and anxiety, but drinking can increase your problems.
- 4 Know when to get help. If your feelings of stress and anxiety are not relieved and have an impact on your ability to live your life, make an appointment with your doctor. If your negative feelings last for weeks, your doctor may recommend seeing a therapist to give you more support.
- If you feel that you cannot handle it emotionally, or that it is not worth living, seek help immediately.
- Do not let the situation deteriorate. Contact your doctor or call a helpline.