With many people facing financial problems these days, learning how to manage your debt has clearly become a very important topic. The economy is still down and unemployment remains at a high level. More people than ever are facing insurmountable debt, foreclosures, repossessions, and other financial hardships. The majority of these people don’t know how to take the proper steps to manage their debt, and eventually become debt free. So if you are in debt, here are 10 tips to manage your debt better and help you get back on track toward financial stability.
1. Be Aware of the Types of Debt You Have
The first step to making a change is usually awareness. When looking into how to get out of debt, remember that certain types of debt have more serious consequences than others. Not all debts are the same, so to manage 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 will be.
You may have more negotiating power if your are dealing with debts like mortgage payments, medical debt, or student loans. There are also government programs to provide debt relief in some cases. Consulting with a lawyer that focuses on debt consolidation and bankruptcy matters can be a good first step to help you come up with a strategy.
2. Put Together A Budget
Putting together a budget will help you set up a plan to get out of debt. First, keep track of your income and regular expenses. You then want to explore some ways to reducing your everyday spending. The goal is to set aside a small amount of money that you will use to repay your debt.
Next, prioritize your debts and determine which bills are the important ones that should be paid. Examples of important bills include your mortgage and utility bills, while less important things may be loans you’ve taken from friends. The dollar amount that you put aside to pay your debt should be realistic and you have to stick to your plan. Be dedicated and keep paying down the amount you owe. It can take a long time to dig yourself out of the debt hole, but if you remain focused on your budget and stay disciplined, it is definitely possible.
3. Deal With Secured Debt First, Then Unsecured Debt
When looking at the bills when trying to get out of debt, determine which of you debt is secured debt and give this priority over unsecured debt. Secured debts are those where the creditor has a lien on your property. Unsecured debt is not tied to any of your property.
In other words, if you do not 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 manage your debt, to make sure you keep your property. Then worry about unsecured debts, where there is no property at risk. If you are already facing a foreclosure or repossession, consider talking with a lawyer to help you possibly avoid foreclosure.
4. Contact Your Creditors
It’s usually a good idea to get in contact 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 whatever possible to repay them, they will be more likely to work with you.
However, if you are planning to file for bankruptcy or you are judgement-proof, you should not contact your creditors. Being judgement-proof means that you have no income or assets that your creditors can take from you. In any other circumstance, it will be in your best interest to get in contact with your creditors. When you call them, you can try to work something out or get a payment plan together. You might even be able to explain a few late payments and not be penalized for missing them.
5. Consider Seeing A Credit Counselor
If you are in a bad financial situation where you need to learn how to manage your debt, it can be helpful to seek credit counseling. Get help from a credit counseling organization that can help you 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 you can afford based on your situation. Education will solve your immediate problems and can make you more aware of the situation to make sure you do not dig yourself into this hole again in the future.
6. Weigh the Pros and Cons Of A Possible Loan Consolidation
When planning to get out of debt, weigh the pros and cons of a possible loan consolidation. Consolidating loans means several of your outstanding loans will be merged into one big loan that is secured by your home. In other words, all your secured and unsecured debt is 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.
- Pros: 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.
- Cons: 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 can lose your home in a foreclosure proceeding. That is why debt consolidation can be risky and is not always a good idea. It can be a good idea to work with a lawyer throughout the process to advise you.
7. Consider Filing for Bankruptcy
Filing for Chapter 7 or Chapter 13 Bankruptcy can help you eventually get out of debt and allow you to start over. Chapter 7 Bankruptcy can only apply for certain situations depending on your income and debt amount, but if you can apply for it, you can discharge a good portion of your debts and get back on track. It will involve liquidating some of your assets in order to repay as much of your debts as possible. You should always work with a bankruptcy lawyer to determine if this is a good option for you.
Chapter 13 Bankruptcy allows you to put together a plan for how you can realistically pay back your creditors. One benefit in 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. Here is more information about how to get out of debt by filing for bankruptcy.
8. Make Sure Collectors Don’t Harass You
Managing your debt is a headache, and having creditors constantly harassing you just makes matters worse. During the whole 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 should not communicate with them).
If the collectors are contacting you at unreasonable hours, using abusive language, making misleading statements, or adding unauthorized charges, report them to the Federal Debt Collection Practices Act (FDCPA). As a consumer you are protected against this behavior. If collection agencies are harassing you, they may be breaking the law. You should report them to the proper authorities.
9. Don’t Pay For Credit Repair Clinics
You should not 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 a lot of shady companies that claim to help you, but they often just make matters worse. Always do your research before paying for something like this.
10. Be Cautious Of Scams Involving Debt Management
Be cautions of scams involving debt management. 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 take 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 they can help you manage your debt or negotiate for you at a certain cost, make sure you check their credentials fist. You do not want to give your money to a company that gives bad advice, false promises, and takes your money without actually providing solutions.
In order to get out of debt, you should first takes steps to learn how to better manage your financial situation. 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 avoid a similar situation in the future.
Remember that getting out of debt requires a plan of action, and sticking to it. If you think bankruptcy or debt consolidation might be an option for you, talk to a lawyer and find out how you can take the first steps to wiping out your debts and becoming financially stable once again.