Mounting debt can cause a stressful situation for consumers as their resources are sucked away. Rather than building a storehouse of savings, debt causes people to watch their hard earned money slip through their fingertips as they struggle to keep up with their payments. With the recent financial disasters the US has faced navigating the COVID-19 pandemic, economists predict an economic depression on the horizon. People struggling with debt will find it difficult to ride out times of uncertainty with little to no disposable income.
So, is it possible to ignore your debts to become financially free? Well, the short answer is no. Pretending debts don’t exist will only result in harassment from creditors and collections agencies, repossessed property, and potential lawsuits. Thankfully, you are not without hope. Rather than fruitlessly digging yourself out of a debt hole, there are options to manage debt and live a financially free life.
How to Find Debt Relief
Debt in America is truly a crisis. Consumer debt in 2018 totaled more than $3.9 trillion. This number increases every year as the problem only gets worse. If you find yourself in a debt crisis, professional debt relief services can help set you on a path for a bright financial future.
Debt relief is essentially a partial, or in some cases, total forgiveness of debt. There are consequences, as it can reflect negatively on your credit score for a period of time. But, the purpose of the relief is to provide an opportunity to rebuild your financial life.
Create a Personal Budget: With out of control debt, now is the time to look at your spending habits and get serious about cutbacks. It’s not until we patiently analyze our finances that we notice the areas where we are bleeding money. These cutbacks don’t have to be permanent—just long enough to save yourself from the debt crisis you are in.
This process could take some time, so make sure you schedule budgeting. That way you are less tempted to rush through it. Gather 3-6 months’ worth of bank and credit card statements. Go through each one noting any non-essential spending. This includes eating out, entertainment, even cable TV. Remaining objective with your own budget can be difficult, so start with what is manageable. Commit to coffee and meals at home. If you are paying premium prices for cable TV, can you switch to a less expensive streaming service? Small savings add up, and they can be used to snowball your debt. To do this, pay the minimum monthly payment on all debts except the one with the smallest payoff amount. This is your “focus account.” Take any extra money you saved and add it to the monthly payment of the focus account until the balance is paid in full. Now, the account with the next smallest balance becomes your new focus account. Continue this process until your debt is quickly paid off.
Accept Financial Counseling: When debt has become too much to handle, the first step on your road to freedom is credit counseling. A qualified counselor will offer advice on money management, guide you in creating a budget, and provide educational resources to set you up for success.
They basically act as your financial guru. By looking at your overall financial picture, the counselor will come up with a personalized plan for debt management. This could include lowering interest rates, waiving fees, and lowering monthly payments to create something more affordable. Financial counseling is by far the best option because, if well managed, it has potential to actually improve your credit score, rather than harm it.
Consolidate Debts: When multiple debts have you spread thin, debt consolidation can bring you back into balance. The idea is to combine all of your smaller debts into one manageable debt. This keeps you more organized and potentially decreases your overall monthly payment. You will be less likely to miss payments and save money in the process.
Debt consolidation is fairly simple. First, you’ll need to gather information on all debts you owe. Write down each one’s monthly payment, payoff balance, and corresponding interest rate. Next, add the monthly payments and payoff balances. (The interest rates are available just for reference.) Now, you need to research debt consolidation options. These are available from most financial institutions. Some debt consolidation credit cards offer 0% interest on transferred balances for an introductory period. However, the entire balance must be paid within the promotional timeframe, otherwise you could be subject to hefty interest and fees. Debt consolidation loans are also available at low interest rates. Just make sure you understand the conditions of the loan, such as monthly payment and term limits.
Negotiate a Debt Settlement: If budgeting and debt management techniques aren’t enough, settling the debt may help. When considering debt settlement, your focus is reducing the principal owed. With a lower principle, you will be able to pay off the amount faster and prevent harassment from collections agencies.
In theory, it is possible to contact the creditor to negotiate a debt settlement on your own behalf. However, very few people do this successfully. If you want to make sure you are getting the best deal possible, contact a qualified debt settlement company. They know how to negotiate with creditors to provide the best relief possible. They will charge a fee for their services, so make sure you understand the terms of your working agreement. It’s important to know that debt settlement has the potential to negatively impact your credit score. However, it can keep creditors at bay, and help avoid bankruptcy.
File for Bankruptcy: Some people can’t find debt relief through budgeting, managing debt, consolidation, or settlement. Bankruptcy is an option that discharges most forms of debt so you can start your financial life over. Student loans or federally backed debts do not qualify when filing for bankruptcy, but you can be set free from most other secured and unsecured forms of borrowing. Since you are no longer tied to the debt, it stops collection calls, as well.
To file bankruptcy, you’ll need to hire an experienced bankruptcy attorney to guide you along the way. He or she will need a full overview of your financial situation, so come prepared with bank, credit card, and loan documents. The attorney will present your case to the bankruptcy court, and contact creditors once it is finalized. Bankruptcy will negatively impact your credit score. Chances are, if you are considering this option, your credit score has already taken a hit from late payments and out of control debt. The bankruptcy judgment will stay on your credit history for 7-10 years, but with dedication, you can rebuild what was lost for a bright financial future.
People are staring down a debt crisis like we’ve never seen. Poor spending habits and an out of control economy are creating more problems than they are solving. Without strong
financial health, families don’t know where to turn when they are blindsided with problems such as layoffs other than debt. Even the mortgage crisis facing the US has caused financial strain on millions of homeowners. Without taking proactive measures, people may find themselves unable to financially survive, rather than thriving. If you feel overwhelmed by debt, don’t go through life hopeless, and don’t ignore the problem. With help, you can live financially free.
About the author- Good Nelly is a financial writer who lives in Milwaukee, Wisconsin. She has started her financial journey long back. Good Nelly has been associated with Debt Consolidation Care for a long time. Through her writings, she has helped people overcome their debt problems and has solved personal finance-related queries. She has also written for some other websites and blogs. You can follow her Twitter profile.