Getting Out of Debt

This is the fourth of a five part series on ‘Getting out of Debt’: Go to Part 1, Go to Part 2,Go to Part 3, Go to Part 4, Go to Part 5.

Introduction

Are your finances out of control? If making credit repayments has become difficult, there are steps you may take to improve the situation.

Self-Help Steps for Overusers of Credit

Talk with family members about the situation. All family members must agree to reduce spending until your family is out of this crisis. This may mean closing charge accounts and not using credit cards.
Contact creditor(s) and explain the situation. A plan may be worked out so that obligations are repaid.
Do not carry your credit cards with you; leave them at home. If you want to use them, you will have to go home and then return to the store. If the item you want to buy is a necessity then you will have access to the credit. If it is an impulse purchase you have the travel time back home toreconsider.
Don’t ask for credit limit increases. This is a quick fix that may create disaster in the long run.
Don’t use credit for consumable items such as food if you do not pay in full each month.
Beware of debt consolidation. Most consumer finance companies that offer this service charge very high interest rates.
If you have more than 15 percent of your disposable income in debt payments, you should take steps to reduce your credit use. Disposable incomeis your net income after taxes and other payroll deductions.
Help may be available from a consumer credit counseling service (if there is one in your area), a financial institution that provides such help,or from the local Virginia Cooperative Extension office. (See pages 6 and 7 of this publication for more information on credit counseling services.)

Don’t Ignore Debts

Many people just ignore debts when they experience financial difficulty. Some fear contacting their creditors. They do not understand the consequences of not paying bills.

Ignoring debts will affect your credit rating. In addition, creditors may seek a judgment in effort to get payment. Or, your bill can be turned over to a debt collector. Your property can be repossessed. Your wages may be assigned or garnisheed. You may be forced into bankruptcy.

What To Do when Bills Stack up

Several options may help you manage financial difficulties when bills stack up and you cannot pay them. You may set up a debt payment plan and discipline yourself to follow it. This is the most desirable option. If this does not work, seek the assistance of a credit counseling service. You could also choose a court provision, such as bankruptcy, to handle your credit obligations. This should be your last resort.

Developing a Debt Payment Plan

If you have more bills than your monthly income can cover, set up a debt payment plan. This will work if you really want to get out of debt. You have to admit that you have financial problems and really want to solve those problems. Getting out of financial trouble is not easy. You have to make up your mind that you will pay your debts within a specified length of time. You have to be willing to discipline yourself to pay back the money you owe.

You need to start right now. Paying a little back is better than doing nothing or just worrying about the problem. Doing this will give you a sense of control. It will start you on your way to solving your financial problems. Completing this plan will take patience. You will have to stick with it until all of your debts are paid. To set up a debt payment plan, follow these steps:

Find out who you owe and how much you owe.
Decide how much you can pay back and when you can pay it back.
Set up a plan for paying back your debts.
Discuss your plan with your creditors or the collection agency or lawyer if they have been turned over for collection.
Control your spending by sticking with your debt payment plan until all debts are repaid.
Occasionally, look over your plan to see if you are keeping up with your debts and your daily living expenses. If there is a change in yourincome, you need to raise or lower your monthly payments accordingly. Be sure to discuss changes, especially lower payments, with your creditors.