If you are having trouble paying
your debts, it is important to take action sooner rather than later. Doing
nothing leads to much larger problems in the future, whether it's a bad credit
record or bankruptcy resulting in the loss of assets and even your home. If
you're in financial trouble, then here are some steps to take to avoid
financial ruin in the future.
If you've accumulated a large
amount of debt and are having difficulty paying your bills each month, now is
the time to take action--before the bill collectors start calling.
1. Review each debt. Make sure that the debt creditors claim you owe is really
what you owe and that the amount is correct. If you dispute a debt, first
contact the creditor directly to resolve your questions. If you still have
questions about the debt, contact your state or local consumer protection
office or, in cases of serious creditor abuse, your state Attorney General.
2. Contact your creditors. Let your creditors know you are having difficulty making
your payments. Tell them why you are having trouble-perhaps it is because you
recently lost your job or have unexpected medical bills. Try to work out an
acceptable payment schedule with your creditors. Most are willing to work with
you and will appreciate your honesty and forthrightness.
Tip: Most automobile financing agreements permit your creditor
to repossess your car any time you are in default, with no advance notice. If
your car is repossessed you may have to pay the full balance due on the loan,
as well as towing and storage costs, to get it back. Do not wait until you are
in default. Try to solve the problem with your creditor when you realize you
will not be able to meet your payments. It may be better to sell the car
yourself and pay off your debt than to incur the added costs of repossession.
3. Budget your expenses. Create a spending plan that allows you to reduce your
debts. Itemize your necessary expenses (such as housing and health care) and
optional expenses (such as entertainment and vacation travel). Stick to the
plan.
4. Try to reduce your expenses. Cut out any unnecessary spending such as eating out and
purchasing expensive entertainment. Consider taking public transportation or
using a car sharing service rather than owning a car. Clip coupons, purchase
generic products at the supermarket and avoid impulse purchases. Above all,
stop incurring new debt. Leave your credit cards at home. Pay for all purchases
in cash or use a debit card instead of a credit card.
5. Pay down and consolidate
your debts. Withdrawing savings from
low-interest accounts to settle high-rate loans or credit card debt usually makes
sense. In addition, there are a number of ways to pay off high-interest loans,
such as credit cards, by getting a refinancing or consolidation loan, such as a
second mortgage.
Tip: Selling off a second car not only provides cash but also
reduces insurance and other maintenance expenses.
Caution: Be wary of any loan consolidations or other refinancing
that actually increase interest owed, or require payments of points or
large fees.
Caution: Second mortgages greatly increase the risk that you may
lose your home.
You can regain financial health if
you act responsibly. But don't wait until bankruptcy court is your only option.
If you're having financial troubles, don't hesitate to call us. We can help you
get back on your feet.
Barry Eisenberg, SCORE Counselor
