The U.S. consumer debt is alarming with April 2018 recording a figure of $3.893 trillion, according to the latest release by the Federal Reserve. This was a 2.9-percent increase from the previous month, which was $3.873 trillion.
Many Americans take loans to buy cars, pay college fees, and buy homes. Transunion predicts that the average personal loan for American adults will hit $8,461 by the fourth quarter of 2018.
Well, these stats shouldn’t make your debt problems irreparable. Inasmuch as they seem disturbing, there are still ways to get on top of your issues.
In this post, we’re going to cover several ways on how to deal with debt problems and debt collectors. Keep on reading to learn more!
1. Calculate Your Debts
Determine your total debt amount will make budgeting and planning for repayments easier.
First, you should pull your credit reports. They usually have detail information on your outstanding mortgage, auto and student loans, collection records, public records, and credit card balances. This will make it easier for you to tally up your balances.
You should review your credit card statements to the current balances. You can easily do this online. Also, call your creditors if your credit report doesn’t show your account balances. This is necessary, especially when you’re uncertain about the amount.
When you have all the current amounts, crank the numbers and determine where you stand.
2. Find Out Who You Owe
In some cases, it’s possible to lose track of your debt. The best way to know which accounts are currently outstanding is by ordering a copy of your credit report.
The report may not provide an exhaustive list of your creditors, but it’s a good standing point. It will also provide the contact list of all your lenders.
In some cases, a certain account may not appear on your report. This might happen when a lender chooses not to report the account to a credit reporting agency directly. Instead, they can use a debt collection agency, which may appear on your report.
Some collection agencies will include the name of the lender in the account details.
Keep in mind that records that are more than seven years old may not appear on your report.
However, collection agencies and lenders will still have the details.
3. Seek Professional Advice
Some people tend to spend without fully understanding their finances. As their habit swells, they find themselves in debts, which they don’t have a clue as to how they materialized.
In this case, a professional financial evaluation can benefit you. Credit counseling services that help you identify different ways to fix your money problems. They can teach you the best money management practices for getting out of your debt problems.
According to the USA.gov, you can find free or low-cost credit counseling services at religious organizations, credit unions, extension offices, and nonprofit agencies. Still, some private professionals can work with you through your debt crisis.
Ensure these counseling services you use are accredited by the National Foundation for Credit Counseling (NFCC) or the Financial Counseling Association of America (FCAA).
4. Stop Adding to Your Debt
If you’re already dealing with existing debt problems, the last thing you want is to get into more debts. You also avoid habits that got you into the problems in the first place.
You can come up with a personal finance policy that bars from applying for loans. For example, some people have a cash-only policy. This policy allows you to avoid using credit and debit cards in making payments.
The problem is, using cards makes challenging to know how much you have. So, you’re likely to spend money blindly on just about anything. With cash only, you know how much you have before spending.
Of course, this policy can be tough at first, but like most habits, it can be developed and nurtured.
5. Pay off or Reduce Your Debt
You’re not going to wake up one day and find yourself debt-free.
At this point, you already know your total debt amount. You can budget your monthly income to pay off or reduce the amount. Be sure to give priority to those accounts that are due soon to avoid high-interest rates.
Be sure to commit to paying a certain amount every month. This way, your debt amount will shrink slowly. Noticing this progress will even give you the motivation to get done with it quickly.
The best way to pay off or reduce your debt is by creating a debt repayment plan. Ensure the plan is feasible and reasonable for your financial situation.
6. Negotiate with Creditors
In most cases, failing to repay your loan is not always the problem. The primary issue is failing to communicate with your creditor. Inasmuch as creditors want their money back together with the interest amount, they empathize with those tough life situations.
As such, talking to your lenders and creditors can earn you flexible repayment terms or even a reduced interest rate. Negotiating with lenders can be intimidating, but it’s a great move if you have nothing left to pay your debt.
Creditors can create a flexible payment plan for you depending on your unique situation. Others also allow you to apply for forbearance or deferment so you can postpone payments without any penalties.
7. Use the Snowball Method
In some cases, you may behind in repaying your debts because of paying them simultaneously.
Well, you can use a technique known as snowballing, instead. This technique allows you to focus all your efforts on paying off one debt first. Experts recommend starting with the smallest debt amount.
In this case, you should commit to paying the minimum on all debts. Then, the remaining funds should be used to pay off the smallest balance.
After paying your first debt off, move to the second smallest and continue working from there until you have cleared them all. This strategy helps psychologically as you’re able to see your list of creditors shrinking bit by bit.
8. Work with a Debt Negotiation Company
For some people, debt settlement is never easy when they work alone. The process can almost seem impossible, especially when your debt is out of control.
Working with a debt negotiation service can offer the much-needed relief. The right professional will evaluate your debts, help you create a repayment plan, complete all the necessary paperwork, and deal directly with creditors.
They help to take some of the overwhelming tasks off your plate. Of course, it’s not a quick path to financial freedom, but a debt settlement service can help to tackle some of the issues that seem unmanageable.
Keep in mind that these services also cost money. Most reputable services are only paid when they deliver results.
9. Consider a Debt Consolidation
You can also choose to consolidate your debts. With debt consolidation, you can roll multiple debts into a single payment. This is a great option for people who don’t have excessive debt amounts and have a good credit score.
Debt consolidation is an excellent option because it reduces the interest rate and lowers your monthly payments.
There are several debt consolidation loans, such as personal loans, consolidation student loans, home equity loans and zero-interest balance transfers on credit cards. Lenders will consider your network when reviewing your application.
The only problem with debt consolidation is that you’re likely to end up with a long repayment period. It can take about 3 to 5 years to complete your debt repayments.
10. Join a Debt Management Program
Still, you have more ways of getting help to clear your debt problems. With a debt management program (DMP), you can eliminate unsecured debts, such as medical bills and credit cards.
Keep in mind that a debt management program is not a loan. Such programs work with creditors on your behalf to reduce monthly payments and interest rates. They also help to waive penalties that you may have received.
The purpose of these programs is to help you stay organized and punctual with your repayments.
With a DMP, you have to stick to the agreed monthly repayment plan for it to work. If you fall behind your payments, your creditors are likely to revoke the plan’s terms. This means the initial payment terms and penalties will be restored.
11. File for Bankruptcy
If your debt settlement options fail to work, filing for bankruptcy is your last resort. You can file for a Chapter 7 or a Chapter 13 bankruptcy. It’s only after a court hearing that you’ll able to know the option to file.
In Chapter 7 bankruptcy, the court will liquidate your assets and use the proceeds to pay all your lenders and creditors. Any pending amounts will be discharged.
In Chapter 13 bankruptcy, you’ll not lose possession of your assets since they won’t be liquidated. Instead, you’ll be given a repayment plan, which usually lasts anywhere from a few months to a couple of years. After the specified period ends and you still have debts, they will be discharged.
Debt Problems – Final Thoughts
Living with debts can overwhelm your life. You can find yourself struggling to meet your basic needs just to pay off your debts. Some people can also get to the point of downgrading, selling their cars, living in a camper, and other valuable possessions.
It doesn’t need to get to that point. A smart debt management plan can help fix your debt problems. If possible, work with a debt management and settlement services to secure better interest rates and stay on track with your repayments.
If you have any thoughts on managing debts, feel free to share them in the comments section below!