Fixing Your Debt Situation
Posted by Bob Jones on July 29th, 2009
You must differentiate between the various kinds of financial problems. For instance, a financial emergency is when you experience a situation that can leave you penniless, homeless or without any substantial property. You should separate these types of emergency from a threatening phone call or a letter from a bill collector, although they are unpleasant enough too.
When experiencing such an emergency, it is crucial to act immediately. You have to begin by contacting the creditor. Doing so enables you to work out a temporary solution, which can help you to keep your property. However, it does not always work and if it doesn’t, getting in touch with your lawyer to negotiate with the creditor is necessary.
Face up to your Problem: A popular maxim in debt problems is that “the less you know, the less it hurts”. However, you have to learn how to face your debt problems. You need to be able to do this because rebuilding the credit will not happen, if you do not know exactly where your money is going or where it needs go instead.
Although it is not problematic to slightly overestimate the amount of your debt, it is always beneficial to know how much money you really owe. You can do this by looking at the bills you have had. If you have thrown out your bills without even looking at them, you can still call customer services and ask about them or ask for copies.
Some creditors also use an automated telephone system, which can give the balance you owe and information regarding missed or future payments automatically, which means you do not even have to speak to anyone. Furthermore, information about your account might also be available on your creditors’ web sites. After obtaining the necessary amounts, add it all up, especially those overdue instalment bills.
Options Available for Handling Your Debts: There are several choices available to you when dealing with your debts. One way is to do nothing. This option is probably the most popular approach employed by those who are deep in debt. Frequently, these people have a very low income and maybe no property and do not usually expect any change in their lifestyle. If you do not expect any steady income any time soon, you can consider this option.
However, doing nothing does not really help at all, so perhaps you can find some money to repay your debts. You could do this by selling a major asset, like a car or a house. This is a good idea if you can no longer afford your car or house payments. Instead of waiting for a repossession or foreclosure to happen, selling the property is always a far better solution.
The proceeds you gain from the sales should be put towards lessening your debt. Moreover, you should remember to pay off the liens placed by the creditors and use anything that is left to pay (something) off your other debts. However, before taking this step, make sure that you have already come up with an alternative for your housing or transportation needs.
A further way to help you pay off your debts, is to reduce your expenses. This will aid you not only in the repayment of your debts but also when negotiating with your creditors. Try to shrink the cost of your food by clipping coupons, buying shop brands, buying where there is a sale on or shopping at discount stores.
However, if you cannot cut your expenses enough, you could always borrow money from a tax-deferred account. Tax-deferred retirement accounts, like IRA or 401(k), can be used to help pay off debts by withdrawing money from them before retirement. However, since you might have to pay a penalty or taxes, this should only be used as your last resort.