Ways to Make Your Financial Problems Worse

by Bonnie Spain

The top ways for you to complicate their financial problems are:

Seeking advice from friends and family.  This usually does not work, because most people don’t tell their friends and family the whole story.  Therefore, the advice is based on incomplete information.  In addition, while everyone has an opinion about what you should do, very few people are trained to analyze your finances.  Most people will provide advice instead of telling you they don’t really have an answer. Many times, their advice will not help you resolve your problems and could make your situation worsse.

Trying to borrow your way out of debt.  You simply cannot borrow your way out of debt.  You’re just trading one debt for another. In rare instances, a consolidation loan will work, but only if you are willing to make changes in the way you manage your finances.  Otherwise, you end up trading unsecured debt for secured debt – but you’re still in debt.

Getting high-interest loans. These loans are a worse alternative than getting a consolidation loan.  Too many people take out short-term high-interest loans only to find they cannot repay the money because the interest and the amount of money they have to repay is so high. They get stuck in a debt cycle that makes their financial problems even worse. 

Seeking the services of a debt settlement company.  Debt settlement companies promise to eliminate your debt or cut it in half.  Unfortunately, using debt settlement services causes far too many people to end up with bills that are further past due. As a result, these people incur more late fees and penalties, increased interest, more debt and ruined credit.    

Borrowing against a retirement account. This is something that should only be done in rare instances, after you have gotten advice about your other financial options. You will have to pay far too many fees and taxes to make this a worthwhile alternative. Your retirement account should be saved for your retirement.   

What should you do?
When you decide to address your financial problems, make sure the steps you take are actually going to resolve your financial issues and not make them worse.  Seek some professional advice to get you moving in the right direction.  A non-profit accredited credit counseling agency is a good place to start.  The appointment will either be free or for a low fee.  A credit counselor will ask you a number of questions to find the best options for your particular situation.   Your credit counselor’s advice can help you make decisions that will solve your financial problems, instead of complicating them and making them worse.

 

What to do When You Are Financially Overwhelmed

By Bonnie Spain

IWhen an individual or couple encounters financial struggles it is not uncommon for them to stop opening their mail. Sometimes it takes courage to get a handle on the whole situation, but that’s exactly what you need to do. Your situation won’t be as overwhelming once you face it head on—ignoring the problem will only make matters worse.

Open all of your mail and gather all of your bills so you can get a complete picture of what you owe. Whether you use a spreadsheet, computer program or paper and pencil, make a list of every creditor you owe, the balance owing, the regular monthly payment and the past due amount.   

Once you know what you owe and to whom you owe it, you need to consider how much you have to pay your creditors. You can do this by carefully reviewing your monthly budget, or by considering the money you have coming in and going out each month.  What do you have left after you pay your rent or mortgage, utilities, medicine, groceries, insurance, and other necessities?  This is what you will have to pay your creditors. 

It can be difficult to take a measured approach when you’re anxious to get out of debt, but you have to set some priorities. Your first priority should be to keep a roof over your head, so pay your rent or mortgage first.  Next, you need to ensure you make your car payment, so you can keep getting to your job. Tax payments are also a priority. Utilities are also important. Then come your other debts.  If you have more than one creditor, every creditor will want to be paid, so you need to determine how much you can afford to pay each one of them. You need to find a way to make the payments from this point forward and also catch up on any past due payments.

Many people receive letter after letter from their creditors, asking them to call if they are experiencing trouble.  You need to take this invitation seriously and communicate with your creditors. Your creditors have no idea what difficulties you are experiencing if you don’t call them.  You need to explain what caused you to become past due and what you plan to do to bring your account current.  Be honest in your dealings with your creditors and don’t promise a creditor something you cannot do. 

Your creditors may work with you, or they may request that you go to a non-profit credit counseling agency to seek assistance.  A non-profit accredited credit counseling agency can often help you gain concessions, such as waived late fees and reduced interest.  This can make it easier for you to get caught up.

Sometimes, the hardest part of a battle is getting started.  Get a clear picture of what you owe and make a plan. If you are unable to come up with a plan on your own to get caught up, seek help.    

 

What does it mean to say bankruptcy gives you a clean slate?

By Bonnie Spain

A bankruptcy doesn’t wipe your credit report clean. Whatever past delinquencies, judgements, or repossessions you’ve had will stay on your credit report for a predetermined time; a bankruptcy will not change this.  What’s more, bankruptcy itself is a matter of public record and will also become part of your credit report. 

Unfortunately, there’s a lot of confusion surrounding bankruptcy, including what it is, what people can and cannot do in bankruptcy, and what assets they can and cannot keep.  You cannot keep a home, for instance, and not make the mortgage payments.  Nor could you keep a car if you don’t continue paying what you owe on it.  Ultimately, the law determines what assets you can and cannot keep and what debts you can and cannot file on. An attorney can advise you on the particulars of the process.

People file for bankruptcy because they are unable to repay their debts. When you file for bankruptcy, you no longer have to repay the debts you declare bankruptcy on. And you do not have to live forever with debts you have no ability to repay. In this sense, you are starting over, which is in a way a fresh start or a clean slate. But it’s important not to assume anything about the process or what you can expect from bankruptcy.

Bankruptcy laws were designed to allow people to start over when their debts are too large for them to repay. These laws were designed so that bankruptcy is the option of last resort and to prevent abuse in the bankruptcy process.  Whether bankruptcy is the best option for you depends on your income, assets and the types of debt you have. In addition, not all debts can be discharged in a bankruptcy. 

My advice is to always investigate all of your options. If you are having trouble paying your debts, you should contact a non-profit accredited credit counseling agency. If you have more questions on bankruptcy, you should consult an attorney that practices bankruptcy law.