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Advice About Getting Out of Debt & Being Debt Free
We offer you helpful steps you can take to improve your
financial situation and getting out of debt if your finances are out-of-control
and if making your credit payments on time has been unsuccessful.
Self-Help Steps for Over-spending using Credit Cards
- Talk with family members about the situation. All family members
must agree to reduce spending until your family is out of this
crisis. Getting out of debt
as soon as possible may mean a need to close your charge accounts and
not using credit cards.
- Contact creditor(s) and explain the situation. A comfortable
repayment plan may be worked out to pay your bills and not negatively
impact your FICO Score.
- Do not carry your credit cards with you; leave them at home.
If you want to use them, you'll have to go home and then return
to the store. If the item you want to buy is a necessity then
you will have access to the credit. If it's an impulse purchase
you have to travel time back home to reconsider.
- Don't ask for credit limit increases. This is a quick fix
but may create disaster later on.
- Don't use credit for consumable items such as food if you
do not pay in full each month.
- Beware of debt consolidations. Most consumer finance companies
that offer this service charge quite high interest rates.
- If you have more than 15 percent of your disposable income
in debt payments, you should take steps to reduce your credit
use. Disposable income is your net income after taxes and other
payroll deductions.
- Help may be available from a consumer credit counseling service
(if there is one in your area), a financial institution that
provides such help, including
your credit card company.
Do not Ignore your Debts Many
people just ignore debts when they experience financial difficulty.
Some fear contacting their creditors. They do not understand the
consequences of not paying bills.
Ignoring debts will affect your credit rating. In
addition, creditors may seek a judgment in effort to get payment.
Or, your bill can be turned over to a debt collector. Your property
can be repossessed. Your wages may be assigned or garnisheed. You
may be forced into bankruptcy.
What To Do when Bills Stack up Several
options may help you manage financial difficulties when bills stack
up and you cannot pay them. You may set up a debt payment plan and
discipline yourself to follow it. This is the most desirable option.
If this does not work, seek the assistance of a credit counseling
service. You could also choose a court provision, such as bankruptcy,
to handle your credit obligations. This should be your last resort.
Developing a Debt Payment Plan If
you have more bills than your monthly income can cover, set up a
debt payment plan. This will work if you really want to get out
of debt. You have to admit that you have financial problems and
really want to solve those problems. Getting out of debt trouble
is far from being easy. You have to make up your mind that you will pay your
debts within a specified length of time. You have to be willing
to discipline yourself to pay back the money you owe.
You need to start immediately. Paying a little back
is better than doing nothing or just worrying about the problem.
Doing this will give you a sense of control. It will start you on
your way to solving your financial problems. Completing this plan
will take patience. You will have to stick with it until all of
your debts are paid. To set up a debt payment plan, follow these
steps:
- Find out who you owe and how much you owe.
- Decide how much you can pay back and when you can pay it back.
- Set up a plan for paying back your debts.
- Discuss your plan with your creditors or the collection agency
or lawyer if they have been turned over for collection.
- Control your spending by sticking with your debt payment plan
until all debts are repaid.
- Every once in a while look over your debt plans to see if you are keeping
up with your debts and your daily living expenses. If there
is a change in your income, you need to raise or lower your
monthly payments accordingly. Be sure to discuss changes, especially
lower payments, with your creditors.
Find Out Who You Owe The first
step in getting out of debt is to find out who you owe and how much
you owe. Get out all of your credit statements.
Consider completing a
Personal Financial Statement or a Worksheet Form listing
the following detailed information about each debt owed:
- Names of all your creditors
- Creditor's address
- Creditor's telephone number
- Your account number
- Collateral (property such as your home, car, land, jewelry,
or other assets that secure any debt)
- Interest rate and fees
- Balance owed
- Remaining number of payments
- Monthly payment
- Payment due date
- Amount last paid
- Date last paid
- Type of legal action taken, such as garnishment (a court order
that requires your employer to pay up to 25 percent of your
salary directly to the creditor) or repossession (the creditor
takes possession of the property you used as collateral for
the loan). If you financed a car, it is likely that the car
itself would be the collateral.
- Collection agency or attorney and the contact information.
Once a debt has been turned over for collection, all of your
correspondence should be with the collection agency or lawyer
handling the collection. Be sure to keep receipts or cancelled
checks of all amounts paid to be sure that the proper amounts
were reported to your original creditor. This is especially
important with student loan accounts.
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