July 25, 2012 5:04 am
Thankfully, there are some steps that you can take to help get yourself back in the black. The steps you take can change depending upon your situation, so here are a couple of common scenarios to help you determine where to start:
1. Building a Better Budget
When creating a budget, you’re essentially creating a snapshot of your income and expenses with the goal of having more income than expenses each month. In order for a budget to be successful, you’ll want to take into account all sources of income as well as every expense – even if they come at just a quarterly or annual interval.
One way to get a handle on your expenses is to collect all of your receipts and bills over the month. If you have seasonal expenses (like vacations, back-to-school shopping, presents and taxes), you’ll want to remember to include those in your budget, too. Now you’ll be equipped to brainstorm ways to cut back on your spending. If transportation has gotten expensive, look into carpooling with a work buddy or take public transportation. If you’ve started spending a lot at restaurants, it’s time to cultivate your cooking skills. Create a plan that will shave off enough charges that you’ll have enough left over each month to start building your emergency savings and paying down your existing debt.
2. You Can’t Pay Your Bills
If you find yourself having to choose between two bills at the end of the month, there are a couple of exercises you can complete to help decrease the stress.
There are a couple of different things to keep in mind when prioritizing – protecting your assets (savings accounts and personal property), protecting your wages and protecting your essential services (think medical and utilities). After covering the priorities, you’ll then be able to focus on credit cards and other unsecured debts.
Be up front with your creditors if you won’t be able to make your payments. Many will work with you to create a modified payment plan that will keep you paying down your debt without overwhelming your budget. Taking a proactive approach will often garner much better results than waiting for a collector to call.
Before you contact your creditors, take some time to review your rights, as outlined by The Fair Debt Collection Practices Act. The Act outlines when and how a debt collector may contact you to help prevent harassment. Keep in mind that while creditors have limitations on their communications, this does not cancel your debt.
3. When You Just Can’t Do It Yourself
Below is a breakdown of credit counseling and two of the tactics they may present to you:
• Credit Counseling. These services will often sit down with you to review your budget and your existing creditors. They will then contact your creditors on your behalf to negotiate payment plans. You’ll want to research the credit counseling agency before you agree to service; some have hidden fees and poor reputations.
• Debt Management Plans (DMPs). These plans allow you to make a deposit each month with your credit counseling agency so they can make payments on your behalf. This allows them to prioritize your debts. Before agreeing to a DMP, you’ll want to ensure that they are handling the debts in a manner that’s been agreed upon with your various creditors; otherwise, an account may go unpaid and be sent to collections.
• Debt Settlement Programs. Sometimes credit counselors will want to work with your creditors to negotiate a lesser payment to settle the debt. Depending upon how this is handled, it could be notated on your credit report and negatively affect your credit score.
If you do decide to seek out the help of a professional, the FTC recommends you start your search with the following sources: credit unions, military bases, housing authorities and branches of the U.S. Cooperative Extension Service. These institutions are typically consumer friendly and trustworthy.
Published with permission from RISMedia.