By the time we are in our thirties, most of us have accumulated a mountain of debt. From car payments to mortgages, student loans to credit card bills, the burden of all this debt puts a lot of pressure on us. Debt is a result of an unpaid loan that grew in size thanks to interest rates but also thanks to penalties. Each time you are late with a payment you suffer penalties which will make it harder for you to meet the next payment. As times goes by, your debt increases a bit each month until you reach the point where you realize that you can’t afford to pay your debt and that you need help. If you are looking for a way to clearing debts out of your life once and for all, then there are a few ways you can get started on it.
Quickest Way to Clear Debt
The first thing that you must do is evaluate where you are financially at the moment. Many people are afraid to do this because they know they will see some bad news. But without knowing where you are, you will never find a way out. So, be realistic about all of your debt, your assets, and take a look at what kind of situation you are really in.
From there, you can develop a budget based on your past and current expenses and see where you are spending the most money if you want to clear the debt. There will obviously be expenses that you can’t change that easily, such as your mortgage, but even with that, you can reduce the costs by refinancing. Are you paying too much money for entertainment, travel, alcohol, cigarettes, food, clothing? It is up to you to decide where the major part of your discretionary income is going and if you can reduce that amount.
Manage your finances well
All your expenditures and borrowings and all your money activities should be accounted for no matter how small or big the amount involved. Start by keeping a diary of all your expenses and withdrawals for the whole month, and you will be surprised when you realize where your money is disappearing to. From that diary, write out a new budget that considers all your expenses and stick to it. Make sure that the budget is below your means though. You cannot continue living beyond what you can afford; it’s not helping you to get rid of your debts.
If you think you can’t solve the problem in your own and that living way below your means will not help you achieve a debt-free life as fast as you wanted to be, then maybe you need to employ a debt management plan that will work best in your situation. There are so many debt relief companies that can help you choose the best option for you. You can go for a consolidation program to merge all your debts in one single loan so you would need to pay only one debt until you’re free or you can go for a settlement plan where you and a consultant can negotiate with your creditors and come up with a payment scheme that reduces your bills considerably, allowing you to pay.
Then, if you can’t come up with a plausible agreement with your creditors or the consolidation loan’s interest rate is just too high it’s impossible to pay it, then it’s time to file for a bankruptcy. Contrary to a pervading belief that bankruptcy is bad, there’s also a good to it. It will help you discipline yourself and make you realize how too much spending/borrowing and being a delinquent spender/borrower can give you a miserable life.
Learning how to clear debt is difficult for most people because it means they can no longer just buy what they see when they want it. By putting charges on your credit cards, without having a way to pay it back, you are only burying yourself deeper in debt. The one way around this is to cut up your credit cards, or at least don’t take them with you when you go shopping!
Never ignore your creditors
Ignoring your creditors may seem like the smart thing to do, after all, you can’t pay them, but actually, it’s not a good choice. That’s because your creditors could report you to the credit bureau and that could affect many areas of your life. It might mean you are turned down for a job that you applied for. It might mean you have to pay more for insurance or you are refused insurance. It might mean you are turned down for a rental property. Bottom line – doing nothing is not looking out for you.
Instead, sit down and start to put a list together of your creditors that include both secured and unsecured debts. You can begin by talking to them if you like and explaining your situation and why you can’t pay. Some of them may work with you, while others may not.
You’ll need to prioritize your debts so that you can decide which ones you will try to pay with your limited funds. For example, paying your mortgage and utilities would be more important than paying your credit cards, because you could become homeless and without power or gas. Then again, if your situation is dire, you may walk away from your home. In that case, you would still want to keep the utility companies happy, as you’ll always need utilities.
The Debt Collection Agency Comes Calling
It won’t take too long before you hear from the debt collection agency, which is a third-party agency that purchases other companies unpaid debts, and then tries to recover part of the amount. They can wreak chaos in your life if you do not know what steps to take to prevent it.
How You Should Deal With Debt Collection Agencies
They are going to phone you morning, noon and night and at every number they think you might be reached at. Instruct them not a phone and to only contact you in writing. Know your rights under the ‘Fair Debt Collection Agency Act,’ and make sure you understand the statute of limitations. The problem with dealing directly with debt agencies to determine a settlement leaves you with no one protecting your rights and looking out for you. It’s not a wise move.
What are Your Options?
The best option would be to contact a professional organization who can challenge, dispute and remove damage caused by a debt collection agency. Or, you could try to repair your credit on your own if you have the time and know how. Honestly, you are better off leaving something as important as your credit score in the hands of the professionals.