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Trapped in a Quagmire of Debt? Take This Tip to Get Out

疲れたビジネスマンIf you’re faced with an unmanageable amount of debt, It can affect you emotionally and physically. This is due to the stress related to dealing with those debts. A 2009 Associated Press/AOL health poll found that 27% of people stressing out over their debts had ulcers or digestive tract problems. A total of 44% reported they had migraines or other headaches, while 29% suffered from severe anxiety.

If you’re experiencing one of these physical problems, drugs probably won’t help. You need to get to the root of the problem, which is your debts.

Fortunately, a fairly simple path out of your debt exists. It’s called consumer credit counseling.

How to find a good credit counseling agency

Reputable credit counseling agencies generally belong to the National Foundation for Credit Counseling (NFCC) or the Financial Counseling Association of America (FCAA). Some are actually sponsored by local Better Business Bureaus.

How it works

Reputable, credit counseling agencies are nonprofits. If you go to one of these agencies, you will need to take your household budget (if you have one), and a list of your debts with each one’s interest rate. You will also need to take a list of the debts you are behind on, your assets and what you could sell them for.

The agency will assign you a trained and certified credit counselor who will go over all this information. She or he will review your budget to determine if it’s realistic, and may suggest improvements or additional cuts. Your counselor will also show you a realistic picture of where you stand financially and may suggest you revise your budget to generate more cash flow.

You could get a debt management plan

If your counselor finds that your finances are in really bad shape, he, or she may suggest you pay them off via a debt management plan (DMP. If this happens, he or she will explain how a DMP works and will discuss its pluses and minuses. You should also be given a general idea of how much you will be required to pay on your debts each month.

It will work with your lenders

Your counselor will figure out exactly how much you can afford to pay your unsecured creditors each month to eliminate your debts over a three- to five-year timeframe. She or he will then contact your lenders to see if they will agree to let you pay those amounts. Your counselor will likely ask your lenders for other concessions like lowering your interest rates, and waiving or reducing any fees you owe.

Before signing off on your DMP

When your counselor has prepared the final version of your debt management plan, be sure to get a copy. Don’t sign your DMP until you have read it very carefully, understand it all, and are sure you can live up to it.

Paying the credit counseling agency

Once you sign off on your DMP, you will be required to pay the credit counseling agency each month, and it will then distribute the appropriate amounts of money to your lenders. You will get regular monthly updates as to the status of your DMP, and this should include confirmation that your creditors were all paid per the terms of your plan.

What consumer credit counseling agencies cost

The advice and counsel you’ll get from your credit counselor will be free. However, if you sign up for a debt management plan, the agency may charge you a small monthly fee of $25 or $35 to administer your plan. Or, it may do it free. This varies among credit counseling agencies. Be sure to ask if you will be charged anything to administer your plan before you sign off on it.

Alternatives to consumer credit counseling

Good alternatives to consumer credit counseling exist but whether they would make sense will depend on your financial situation. For example, if most or all of your debt is credit card debts, you might consolidate them by transferring all of their balances to a new card with a lower interest rate. Or, if you qualify, you could transfer them to a 0% interest balance transfer card, where you would have as many as 18 months interest-free.

Other options for debt consolidation include a home equity loan and a homeowner equity line of credit. Of course, you would need to have equity in your home to qualify for either of these loans.

Debt settlement

Finally, there is the alternative of debt settlement. It’s grown a lot in popularity as it represents the only way to pay off debts for less than what you owe. The trustworthy debt settlement firms such as National Debt Relief are usually able to get debts cut by as much as 50% or even 60%. Of course, they are for-profit firms and charge for their services. However, if you owe more than $10,000, then using a debt settlement firm could still save you money.

The Best Debt Management Tips of 2017

Being deeply in debt can skew your entire financial life. If your problem with debt becomes serious enough, it will affect your credit score. In turn, this can mean higher interest rates, higher insurance premiums, and even problems renting a house or apartment. What debt amounts to is borrowing from your future self, and your future self could end up being very disgusted with you due to all that debt you now have to pay off.

Ignoring your debts won’t make them go away any more than ignoring a bad tooth will make it go away. You need to take steps now to do a better job of managing your debts, and here are eight tips that could help.

1. Pay down your debts soonerAdult Woman

The easiest way to get out of debt is to pay down your debts quicker. Are you making just the minimum payments on your credit card debts or other revolving debts? Try doubling down on as many of them as you can, or at least paying significantly more than the minimum. In addition, if you pay half your monthly bill every two weeks, you’ll be making one extra payment over a year, which will help you pay off that debt sooner.

2. Set up automatic payments

You should be able to set up automatic bill pay through your bank. If not, you will need to go to your individual lenders, and arrange automatic payments through them. Automatic bill paying accomplishes two things. First, it eliminates the possibility of missing a payment. And second, it relieves you of the burden of having to remember when your payments are due.

3. Make a budget

Trying to manage your finances without a budget is like trying to assemble an IKEA desk without the instructions. You may get the job done but only by luck. If you truly want to do a better job of managing your finances, you need to create a budget or at least a spending plan. One of the simplest ways to budget is to divide your net income into three categories. The first should be your essential expenses (think utilities, rent, or mortgage payment, etc.). This should be 40% of your net income. The next 30% should be your savings. The final 30% is for your discretionary spending or the fun things in life.

4. Pay off the debt with the lowest balance

This is called the snowball method. The financial guru Dave Ramsey introduced it.. The psychology behind this is that you should be able to pay off the debt with the lowest balance very quickly. This will give you momentum (as well as more money) to pay off the debt with the second lowest balance, and so on. It’s like how a snowball rolling downhill gathers momentum.

5. Understand your limits

Maxing out your credit limits can do serious damage to your credit score. Keep the balances on your credit cards as low as possible. If you can keep their total below 30% of the total amount of credit you have available, your credit score will improve. And, of course, always make your payments on time.

6. Check your credit reports

You can get your credit reports free once a year from the credit reporting bureaus – TransUnion, Experian, and Equifax. Or you could get all three simultaneously on the site www.annualcreditreport.com. The reason to keep an eye on your credit reports is to spot errors that could be dragging down your credit score. Many people choose to get a free credit report every four months. This is a way to kind of monitor credit year-round, without having to pay a credit monitoring service.

7. Create an emergency fund

You can never know when you’ll run into a financial emergency, but you can bet you’ll have one. You could lose your job, your automobile could require an expensive repair, or you could suffer a serious illness. The only way to buffer yourself against one of these emergencies is to have an emergency fund. While many experts feel your fund should be the equivalent of six months’ of your living expenses, most people find this undoable. If you fall into this category, try for at least three months’ worth.

8. Stop using your credit cards

Unless you’re paying off your balances at the end of every month, using your credit cards means piling on more debt. So, stop using them. Try to pay cash for all your purchases. If you don’t have enough cash to pay for something, don’t buy it. We understand that takes a serious amount of self-control, but it’s the only way to keep from adding on debt. When you stop using your credit cards be sure continue making your monthly payments, This will improve your credit utilization rate, and will help your credit score.

In summary

Here were eight tips that could help you better manage your debts. If you don’t feel you can implement all of them this month, at least pick a couple and try to use them. Doing something is better than doing nothing – especially when it comes to your debts.

The A-B-Cs Of Debt Management

If you feel as if you’re drowning in a pool of debt you’re not alone. The average American family now carries $80,000 in debt of which $5232 is in credit card debt. And the average debt per credit card for people that usually carry a balance is $7,494.

The harsh truth is that if you’re carrying $20,000 or more in debt there’s no easy way out. It will take you a fair amount of self-discipline and anywhere from 2 to 3 years to become debt free. One of the best ways to achieve this is through debt management. And here are the A-B-Cs you need to know to get started.

A is always track your spending

There are reasons why you’ve fallen so far into debt and you need to know what they are. To do this you will need to track your spending for at least 30 days. This means writing down every little thing you spent money on up to and including that drive-through latte you got yesterday morning and that magazine you bought on impulse today.

Once you’ve done this you will need to organize your spending into categories. This could include groceries, eating out, clothing, entertainment, those drive-through lattes, transportation, your cell phone bill, student loan payments and so forth.

Now, sit down, take a deep breath and look carefully at those categories. Somewhere in there are the reasons why you’re struggling with debt. It could be that you’re eating out too often, buying too many clothes or spending too much on entertainment. The important thing is to isolate those hotspots or areas that are causing you to pile up debt.

B is for budget

Okay, so now you know those areas where you’re spending too much money. Next, you need to create a budget designed to trim your expenses. Making a budget is not all that complicated. You could do it with a piece of paper and a pencil. Draw a horizontal line across the top of the paper and then a vertical line in the middle down to the bottom. On the left side of that line write down your fixed expenses or those things where you have no leeway, which typically would include insurance, rent or mortgage payment, student loan debt and your auto payment – if applicable. Then on the right side of that line write down all of your discretionary spending using those categories that you’ve created. Review each of those categories with an eye towards where you can make cuts. Your objective is to get your spending down to below your earnings so that you’ll have more money available to begin paying down your debt. For starters, you should try to whittle your spending down by 20%. If you find you can’t do this go for at least 10%.

C is for create a plan

If you’ve gotten this far, good for you. You obviously want to do debt management and get your debts paid off. But wishing won’t make this happen. You need to have a plan. Open a spreadsheet and write down all of your debt – how much you owe each lender, the minimum payment, its due date and interest rate. Now you have a choice to make because there are two popular ways to pay down debt. The first is called snowballing your debt, the second is stacking it. To snowball your debt you would arrange it in order with the debt that has the lowest balance down to the one with the biggest To snowball your debt, you would arrange it in order with the debt that has the lowest balance down to the one with the biggest and then focus all your efforts on paying off the debt with the lowest balance. Paying that off should go fairly quickly and will free up money you can use to begin paying down the debt with the second lowest balance and so on. Of course, you will want to continue making at least the minimum payments on your other debts.

Stacking debt is basically the opposite of snowballing debt because it means organizing your debts with the one that has the highest interest rate down to the one with the lowest and then doing everything you can to pay of the debt with the highest interest rate. The simplest way to think of these two methods is that snowballing will get you out of debt the quickest while stacking will save you the most money

C is also for conscientiousness

Remember how we said it may take you 2 to 3 years to get debt free? This is a period during which you must be conscientious. You need to keep your spending under control, make all of your payments on time every month and heavy up on those payments as much as you can. Here’s an example of what this can mean. Let’s say you owe $10,000 on a credit card at 15% APR and make payments of $300 a month. In this case, it would take you 44 months to pay off the debt and would cost you $3,017.04 in interest. If you were to up that payment by $100 to $400 a month, you would pay it off in 31 months and it would cost you only $2065.31 in interest – a savings of more than $900.

There it is – the A-B-Cs of debt management. Follow them and it’s guaranteed you’ll be debt free some day and just think how good that will feel.

< H2> C is also for conscientiousness

Remember how we set it may take you 2 to 3 years to get debt free. This is a period during which you must be conscientious. You need to keep your spending under control, make all of your payments on time every month and heavy up on those payments as much as you can. Here’s an example of what this can mean. Let’s suppose you owe $10,000 on a credit card at 15% APR and make payments of $300 a month. In this case, it would take you 44 months to pay off the debt and would cost you $3,017.04 in interest. If you were to up that payment by $100-$400 a month, you have it paid off in 31 months and it would cost you only $2065.31 in interest – a savings of more than $900.