Managing Debt

If you or someone you know is facing debt problems, there are a number of options to consider. These options can range from the simple solutions, like budgeting, to more involved solutions such as credit counseling or debt consolidation, to the last resort option of bankruptcy.

Develop a Budget - Your first step toward improving your financial situation is to realistically assess your income and your expenses. By prioritizing your expenses, identifying those that are necessary and cutting back on the rest, your can start to track and control your spending.

Contact Your Creditors - Contact your creditors right away if you are having trouble making your payments. Explain the difficulty and try to work out a modified payment plan that reduces your payments to a more manageable level.

Deal with Debt Collectors - Federal laws, like The Fair Debt Collection Practices Act, dictates how and when a debt collector may contact you. Know your personal rights regarding debt collection.

Credit Counseling - If you're unable to resolve debt problems on your own, consider contacting a credit counseling service; they can help eliminate much of the stress of dealing with financial problems on your own. These services will help you establish a debt repayment plan and may help you reduce payments with creditors.

Auto and Home Loans - If you see default approaching with your auto loan, consider selling the car yourself and paying off the debt, thus avoiding the added costs of repossession and a negative entry on your credit report. If you fall behind on your mortgage, contact your lender immediately to avoid foreclosure. Most lenders are willing to work with you if they believe you're acting in good faith and the situation is temporary.

Debt Consolidation - You may be able to lower your cost of credit by consolidating your debt through a second mortgage or a home equity line of credit. These loans may add up cost-wise, but may alternatively provide certain tax advantages not available with other kinds of credit. This option requires careful consideration, however, as these loans require your home as collateral.

Bankruptcy - Personal bankruptcy is usually considered the last resort of debt management because results are long-lasting and far-reaching. A bankruptcy stays on your credit report for 10 years, which makes it difficult to acquire credit, buy a home, get life insurance, or sometimes get a job. However, it is a legal procedure that offers a fresh start for people who can't satisfy their debts. You'll probably need to seek financial and/or legal counsel before deciding whether this option is appropriate for your situation.

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