10 tips on how to manage your debts
With lots people facing financial problems these days, knowing how to manage your debt has clearly become very important. More than ever, people are facing insurmountable debt, foreclosures, repossessions and other types of financial hardships. Many of these people don’t know how to take the proper steps to manage their debt to eventually become debt free. So if you are in debt yourself, here are 10 tips to help you manage your debt better and get you back on track towards financial stability.
- Be aware of the types of debt you have
Usually, the first step towards making a change is awareness. When looking at how to get out of debt, don’t forget that certain types of debt have more serious consequences than others. Debts aren’t all the same. So when managing your debt, you need to figure out a strategy based on the types of debt you have. The type of debt you have can determine what options are available to you and what your negotiation strategy is going be.
You may have more negotiating power dealing with debts like mortgage payments, student loans or medical debt. There are also government programs to provide debt relief in some cases. Consulting an attorney that specializes in debt consolidation and bankruptcy matters can be a good first step to help you come up with a strategy.
- Put together a budget
Putting together a budget can help you set up a plan for getting out of debt. First off, keep track of your income and regular expenses. After that, you’d want to explore some ways to reduce your everyday spending. The goal here is to set aside some money that will be used to repay debt.
Next, prioritize your debts and find out which bills are the most important and should be paid.
Examples of important bills include your mortgage and utility bills, while less important things might be loans you’ve taken from family or friends. The amount of money you put aside to pay your debt should be realistic and you must stick to your plan. Be dedicated and keep paying down the amount you owe. It can take a while to dig yourself out of the debt hole, but if you remain focused on your budget and stay disciplined, it is definitely possible.
- Contact your creditors
It’s usually a really good idea to get in touch with your creditors when trying to get out of debt. Communication is key, so if you let them know about your situation and reassure them that you are doing everything you can to repay them, they will be more likely to work with you.
If you are planning to file for bankruptcy or you are judgement-proof, you should not contact your creditors. Being judgement proof is when you have no income or assets that your creditors can take from you. In any other circumstances, you should contact your creditors as it’s really in your best interest. When you call them, you can try to work something out or get a payment plan together. You might even get a chance to explain a few late payments and not be penalized for missing them.
- Deal with secured debts first
When looking at the bills while trying to get out of debt, determine which debts are secured and give them priority over unsecured debts. Secured debts are the ones where the creditor has a lien on your property. Unsecured debts are not tied to any of your property.
In other words, if you don’t pay your secured debt, you can lose some of your property like your home or car. Examples of secured debt include your mortgage and your car loans. You should deal with those debts as the first step to managing your debt to make sure you keep your property. Worry about unsecured debts later as there is no property at risk. If you are already facing a foreclosure or repossession, consider talking with a lawyer to help you avoid foreclosure if possible.
- Consider filing for bankruptcy
Filing for Chapter 7 or Chapter 13 Bankruptcy can help you get out of debt and eventually allow you to start over. Chapter 7 Bankruptcy may only apply for certain situations depending on your income and debt amount. However, if you are eligible to apply for it, you can discharge a good amount of your debts and get back on track. Liquidating some of your assets will be involved in order to repay as much of your debts as possible. You should always work with a bankruptcy attorney to determine if this is a good option for you.
Chapter 13 Bankruptcy allows you to put together a realistic plan for how to pay back your creditors. One benefit of filing for bankruptcy is that you don’t need to pay back all that you owe and you will be able to keep most of your property.
- Consider seeing a credit counselor
If you are in a bad financial situation and need to learn how to manage your debt, it can be quite helpful to seek some credit counseling. Get help from a credit counseling organization that can help and educate you on your options to get out of debt. These agencies can even contact your creditors for you and get you on a reasonable payment plan which you can afford based on your situation. Education may solve your immediate problems and can make you more aware of the situation to make sure you do not dig yourself into another hole like this again in the future.
- See what are the pros and cons of a possible loan consolidation
When you make your plan to get out of debt, weigh the pros and cons of a possible loan consolidation. Consolidating loans mean that several outstanding loans will be merged into one big loan that is secured by your property. In other words, all your secured and unsecured debt are consolidated into one secured debt. You may be able to take out a second mortgage on your home to secure this debt. However, it can be a very risky process and it’s not for everyone.
Here are the pros and cons of consolidating your loans:
- Lower payments
- When you consolidate your loan, you can normally reduce your monthly payments and lower your interest rates
- There are also tax advantages on top of it
- Possible loss of your home. If you cannot pay your new consolidated loan, you are at risk of losing your home. The loan was secured by your house, so if you cannot pay off this loan, you may lose your home. That is why debt consolidation can be risky and is not always a good idea. It might be a good idea to work with a lawyer throughout the whole process so you can be advised on each step.
- Don’t pay for credit repair clinics
You should never pay for credit repair clinics during the process of trying to get out of debt. They may promise to help you qualify for a credit card or loan, or clean up your credit report. In reality, these clinics are just charging you for services that you can do on your own for free. You should not have to pay for qualifying for a loan or getting a credit card. Furthermore, these clinics tend to use questionable tactics. There are many shady companies that claim they can help you, but they often just make matters worse. You should always do your research before paying for something like that.
- Make sure collectors don’t harass you
Managing your debt is a headache and having creditors constantly harassing you just makes things worse. During the process of trying to get out of debt, you should communicate with the collection agencies and keep them informed (unless you plan to file for bankruptcy or you are judgment proof, in which case you don’t have to communicate with them).
If the collectors are making misleading statements, using abusive language or adding unauthorized charges, report them to the Federal Debt Collection Practices Act (FDCPA). As a consumer, you are protected against this kind of behavior. If collection agencies are harassing you, they may be breaking the law. You should report them to the proper authorities.
- Be cautious of debt management scams
Be cautious of debt management scams . Scams involving debt management have been receiving many consumer complaints in recent years. This issue has caught the attention of many state attorney generals and caused them to pursue legal action against these scams. The Federal Trade Commission has brought forward many lawsuits against the companies initiating scams as well.
If a company tells you that they can help you manage your debt or negotiate for you at a certain cost, make sure you check their credentials first. You don’t want to give your money to a company that gives bad advice, false promises and takes your money without actually providing any real solution.
To get out of debt, you should first take steps towards learning how to manage your financial situation better. Take note of these 10 tips to help you manage your debt. By following this advice, you can get your expenses under control and come up with a strategy for managing and repaying your debt. It will also help you to stay out of trouble in the future.