Having debt problems with your creditors might give you so many difficulties and anxiety. You may need to face their constant calls and the pressure or demand to make a payment.
Here are few “workarounds” which may help you deal with all these troubles.
> Your rights – Legally, creditors are entitled to contact you to collect unpaid debts. They can send demand letters, calls or pay you a home visit. But creditors are expected to act within the law when collecting debts you may owe them.
Generally, most creditors abide by rules, but there are unavoidable circumstances which may lead the situation to go off-hand. It is important to know before you avail of any loan/s, make it clear in case default on payment happens. Terms and conditions are important to be read before signing any loan. Great communication is the key.
> Which of the debts you need to pay first – There are more than a handful of expenses that needs to be covered each month that it can become burdensome in your pocket, and you will end up having difficulties on which to take care of first.
Classify the heaviest to tackle: Mortgage or secured loans, Rent, Taxes, Child maintenance, miscellaneous expense, Utility bills, food, and transportation. It’s important that you pay your priorities in full each month. It’s also important that you make an arrangement to clear any priority arrears as soon as possible.
> Pay off or reduce your debt – How? A surprisingly common question we’re asked is how to pay off my debts and make payments to creditors. Sometimes this isn’t as straightforward as it should be.
If you’re finding it difficult to make payments to your creditors, seek help from a professional financial adviser. He/she should be able to provide you with legal and practical ways of dealing with your creditors, and how to settle your debt/s.
> Writing off your debt – There are extreme cases or situations that will make your creditors write off your debt/s. You may yourself in this situation if, you were permanently unable to work, or you have a terminal illness. If you find yourself in a vulnerable situation, it may be worth asking creditors to write off your debts rather than keep contacting you to ask for money you don’t have. If proven that you don’t have the capacity to pay, creditors may be able to consider your extreme situation and grant you to write off your debt.
> Recognizing who you owe money from – If you can’t find any information about your debts from your credit files, then your only option is to wait for creditors contact you. They will use your last known address or address on your credit file. Some people deliberately avoid repaying debts or contacting creditors, in the hope that the debts go away/creditors give up. This will make your situation worse as you risk further action against you, and your debts could keep going up.
Debt Consolidation – the act of combining one or more debt accounts into one (most beneficial if done at a lower interest rate).
A lot of companies may want you to believe that debt consolidation is quite complicated and make you believe that you need them to consolidate your debt. Well, not the case! You can seek out a company to help you or you can do it on your own through a balance transfer credit card, home equity loan, unsecured loan through your bank or credit union, or peer to peer lender.
And if you try to search for a “debt consolidation company”, chances are they are really a debt settlement or debt management company.
Debt consolidation is a great first step towards optimizing your debt payoff plan. Here’s when you should consider debt consolidation:
> You’re paying on one more debt accounts that have very high-interest rates (such as most credit cards).
> You’re paying on multiple debt accounts and you’re struggling to keep track of them all.
Debt Settlement – the act of you and your lender agreeing to settle a debt for lower than the amount currently due.
Taking care of debt requires you to either have money to settle the debt with, unless you can go into a bankruptcy/hardship program and save money for the mean time. Or, you can go to a debt settlement company that puts your monthly payments in escrow for you to settle later.
Both options require money that may not be available, depending upon your financial condition. If you are struggling, the latter option may deeply damage your credit score. If you don’t make enough money to comply with the monthly payments, debt settlement will not. You can reconsider bankruptcy. But of course, bankruptcy also affects your credit but gives those who cannot see any way to reasonably pay off their debt a chance to start fresh.
If you are worried about your credit score, then you will need to look for other possible options.
For example, build an emergency fund, create a budget, and view money as a tool that can work for you rather than the other way around, build a solid foundation to start from. Personal finance management isn’t taught in schools and the common belief is that earning more money is the only way to reach financial success.
People of all situations and incomes face debt. Those who reach success paying debt off flip their money script. They realize that it takes time and that there are no easy ways out. They realize that they have more control than they ever thought they did, they create a plan, and they change lifestyle to prevent the ongoing cycle of debt.
No matter the reason you got into debt, no matter your income, no matter your past, and no matter your present, you can create a life of debt freedom. The power is in your hands – you just need to grab it!
Struggling with debt payments on things like credit cards, mortgages, loans, bills and etcetera? Then, debt management plan just might be what you need.
Debt Management Plan (DMP) – is an informal agreement between you and your creditors for paying back your non-priority debts. Non-priority debts are things like credit cards, loans, and store cards. You pay back the debt by one set monthly payment, which is divided among your creditors. Most DMPs are managed by a DMP provider who deals with your creditors for you. This means you don’t need to deal with your creditors yourself. A DMP is not legally binding, meaning you’re not tied in for a minimum period and can cancel it at any time.
Check if DMP is right for you –
> It may apply to you if you can afford monthly repayments on your priority debts (mortgages, rent & taxes) and your living costs, but are having difficulties with credit card and loans.
> You may want someone to handle your creditors.
> Making one set monthly payment will help you to budget.
***You need to note though that, you need to be sure you understand the impact a DMP will have.
> It may take longer to pay back your debt because you’ll be paying less each month.
> Your creditors will not necessarily freeze the interest and charges on your debts, so the amount you owe might go down by less than you think.
> Your DMP provider might charge you a fee, but there are several free providers you can use so there’s no need to pay if you don’t want to.
> Your creditors might refuse to co-operate or continue to contact you.
> The DMP may show on your credit record, making it more difficult for you to get credit in the future.
If you are not sure whether this sounds like it is right for you, you may want to consider other options in dealing with your debts.
Availing of DMP – Once you decided that debt management plan is right for you, you will need to follow few things in setting up:
> Make sure you’ve sorted out your priority debts first.
> Work out your budget to see if you have enough available income to make your monthly payment.
> Choose a DMP provider, remembering that you can choose a free provider.
> You need to check the details of the agreement or contract carefully.
Before you start – Try to find your most recent bank statements, payslip, debit and credit card statements or bills receipts for things you usually pay for in cash.
Make sure you include all your expenses, for example, the money you spend on your partner or family.
Recovering from a personal setback will likely find yourself having to reconsider financial priorities in targeting where to focus effort and resources. Not all household debts will equally impact your family. First payment priorities should be all bills associated with your essential needs, including utilities, food, mortgage or rent, and insurance. While you can most likely find ways to save on all of these bills, by cutting back and negotiating lower rates, paying them is extremely important.
Also, having appropriate health insurance coverage is essential because a medical emergency could put a huge dent in your finances. Check out government offered health coverage or HMO companies that offer lower but practical medical coverages.
Here are some examples on how you can prioritize your financial obligations:
> First priority debts – would include your rent or mortgage, tax liabilities, insurance premiums, auto loans, and utilities.
> Second priority debts – may include other secured loans through financial institutions, such as a car loan.
> Third priority are lenders – this includes retailers, hospitals, doctors, credit card issuers and other unsecured creditors.
Remember, each person will have his or her own unique list of priorities. Realize that just because a category of debt is listed as a third priority, does not mean it isn’t important. It simply means you need to contact and make payments to the higher priority creditors first. For help determining your financial priorities.
Set your priorities – create your financial priorities worksheet, evaluate if these are “needs or wants”, then rank your payment priorities.
Priority – make a list of all your debts; rank and figure out when, and how will pay your debts.
On your spreadsheet, create the following tabs, and make notes on how will you resolve or attain your goals:
Paying off unsecured debt
Paying all secured debt on time
Saving for a down payment on a home
Buying a car
Taking a vacation-Having money for entertainment
Starting/maintaining a savings account
Setting SMART financial goals
Before you think about setting goals, review the five parts of SMART goals.
S A smart goal is specific. It pinpoints something you want to change to achieve.
M A smart goal is measurable. You can measure or count a SMART goal.
A A smart goal is achievable. Setting goals too high can lead to frustration.
R A smart goal is rewarding. Reaching the goal should be a reward for your hard work.
T A smart goal is trackable. Set milestones and schedules for your goals.
After you decide what your priorities are, review your budget and determine which bills you are unable to fully pay. Then, contact your creditors to discuss your situation. Explain that you want to pay your bills but due to your setback, are unable to. In some situations, you may be able to get a new payment plan.
As we approach the second quarter of the year, let’s try to shy away from the mistakes done and start a clean slate by focusing on what can be done now to improve the financial situation. For most us, a better quality of life translates to more money. Here are few tried and tested tips to share with you:
Create a Budget
Budget can become overwhelming, but if you make a monthly budget and stick to it, you can identify areas where you overspend and save big by controlling spending or simply by using money wisely. Write down monthly income (after taxes) and itemize monthly bills and other expenses. Don’t forget about the “little” things like daily coffee or fast food lunch – they add up.
“Spring Clean” Your Finances
You can dedicate an hour over the weekend to review all your current bills, or, you can thoroughly review bills as you receive them, keeping an eye out for hidden fees and services you don’t need or want. If you find questionable charges, investigate them.
Maximize the Value of Coupons
Learn about the potential savings associated with extreme couponing. Pick up a Sunday paper, browse through all the ads to find coupons on items you regularly buy. But don’t stop there. Keep an eye out for store sales on items you buy the most, and incorporate your coupons to increase the savings.
Reduce Entertainment Expenses
Entertainment is a necessary expense. However, it’s also necessary to avoid overspending in this area, especially because it’s easy to get carried away. Check one of the many daily deal websites and see if you can find discounts on places that you visit or would like to. You can often save 50 percent on dining and local activities simply by planning ahead and printing a voucher.
Commit to Fresh Foods
Buying processed foods is more convenient, but buying fresh will save you money and improve your health. You may need to spend more time in the kitchen, but if you make meals in bulk and freeze for later use, you can enjoy the health benefits and savings of eating fresh without “slaving over the stove” everyday. Visit your local farmers markets and make it a point to visit them weekly. You’ll find the highest quality of fruits and veggies at low prices.
Once you’ve identified and implemented ways to save daily, direct those savings towards paying off debt so you can reduce interest charges and improve your credit. And if you haven’t yet started saving for retirement, now is the time.
When it comes to your finances, a few dollars a day can make all the difference in reducing debt, saving for the future, and improving your overall quality of life. Everyone has the power to change, and saving 50 cents at the grocery store could be your first step to a life of financial freedom.