Article By : Patrick Mansfield | U.S. Consumer Finance
Start By Doing A Financial Assessment:
The first option you should look at is doing a financial assessment of your income and how much you spend by month. When doing a financial assessment remember to prioritize your expenses. You may want to consider secure bank loans over unsecured bank loans. A loan that is secured would be your mortgage or car payment. Most credit card debt is considered unsecured. Try and reduce all unnecessary expenses. Going out to eat six times a month, or just the occasional shopping spree. At this stage, a bare bones expense report is important in developing a plan. When you are done with your financial assessment and the math doesn't add up, then you may want to consider the following:
Contact Your Creditors:
Tell them why you are having difficulty making your payments. Remember to be courteous at this stage in the game. It is important at this early stage to try and work out a payment plan with your creditors. If you wait too long it is possible your debt could be sold off to a third part ( Debt Collections) and your creditor has given up on you.
Debt Relief Services:
If your budget does not allow you to pay a creditor, and you have contacted the creditor and they are unwilling to work with you, then you might want to consider a debt relief service. Many debt relief organizations are counselors and work for a non-profit organization. You will also encounter counselors that are for profit. As with any business, you are going to have good organizations, and not so good. If you feel more comfortable in dealing with a non-profit you can go to a local university, credit unions, and military bases offer non-profit counseling services.
Debt Management Plans:
After your initial meeting with a credit counselor, and it is determined that you can't meet your debt obligations, it may be recommended that you enter into a debt management plan. Under a debt management plan, you deposit a pre-determined amount of money into an account opened by the credit counselor. The credit counseling organization then will pay off your creditors with your deposits. Your creditors must agree to this arrangement and in some cases will reduce your interest payments, or waive certain fees.
Debt Settlement Programs:
Debt settlement programs work differently than a debt management plan. A debt management plan may involve more risk. Your credit score will be negatively impacted, and it could become difficult for you to get credit in the present and the future. Debt settlement programs are run by for-profit companies. It is often referred to as a last resort to bankruptcy. If you find a reputable company they will often contact your creditors and work out a settlement that reduces your total debt obligation. In some cases, they may reduce your debt by 50% or more. It depends on the company and the creditor. The bottom line is that some creditors are willing to do this in knowing that the alternative may be that get nothing. Before establishing a relationship with a debt settlement company do a little research and make sure they are reputable. In dealing with debt collectors you do have rights that are protected by law. For example, debt collectors may only contact you between the hours of 8 a.m. and 9 p.m. They can't call you at work if your employer does not allow it, and they must stop contacting you if you request such in writing.
When you need a new financial start there are a few steps that must be made to get things on the right track. It is not a complicated process. Here are the steps to get your financial life in order so you can develop debt management plans for your debt collectors and creditors.
Creating a Budget:
The most important aspect of creating your budget is to be in charge of your finances. Evaluate in a factual manner, how much money that you can spend after all bills are paid. You can do this by placing all of your expenses in a list and calculating the total of those expenses. Then deduct that from the amount of money that you earn. Then you have a remaining balance. This money can and should be used to pay off any outstanding bills and offer you some form of investment for your future. The remaining balance is what you have as disposable income. The objective is to save some money and still meet all expenses.
Dealing with Creditors:
The first thing that you must do is to speak to any creditor that you have problems with. Any debt owed must be handled as soon as possible. Tell them how much you can pay and when. Work with them to create a budget that will allow you to get your spending under control and your debts paid off.
Handling Debt Collectors:
Due to the Fair Debt Collection Practices Act, federal law protects how your debt collector may interact with you. Laws dictate the hours that may call you as well. Those hours are from eight am to nine pm in the evening. They may not contact you at any other time. They also may not call you at work if you have indicated that this is a problem. They cannot lead you on in a manner that is deceitful or harasses you at any time. Any written request to stop contacting you to them must be honored.
Handling Auto and Home Bills:
Your bills have to be paid in enough time to satisfy the loan holders. Things like your cars, home, and other assets can be taken away if they are not paid on time. Other debts like medical expenses and credit cards can be connected to anything.
When you fall behind on your payments with your mortgage and cars, they can be taken away from you. That is why you must contact the lenders immediately if you are in financial duress. You should try to avoid bankruptcy.
Lenders can lower temporarily stop your payments if you make special arrangements with them. Some lenders might even change the loan itself. Be sure to ask about any penalties that are added on if any changes are made.
If the lender does not allow such a situation to fix your finances, then you can contact any housing agency. They can help you handle your debt if it is part of an FHA mortgage. They can be reached at the Urban Development or housing authority. Any of these types of debt management plans can help avoid bankruptcy.