The burden of overwhelming debt problems can be paralyzing. It brings a lot of negative implications in your life. Your credit situation can really hold you back if you do not do something about it. And that is not just in terms of your finances.
Do not think that the effect of your debt will only be on your finances. It can be strong enough to affect even your relationships. It can destroy your marriage and the trust that you have with your partner or spouse. It can also cause you to negatively influence your kids. The stress that you feel can resonate in the way you treat your children.
Debt can also affect your health. Stress can lead to a lot of health problems that includes heart ailments. It can affect the way you work – which can hinder you from growing in your career. These are only some of the things that overwhelming debt problems can do to your life.
According to Time.com, the average household debt in the country today goes beyond $130,000. That is more than twice the average annual income of a family. This debt is a combination of mortgage loans, credit card debts, student loans, and even car loans. The $130,000 debt is actually costing households at least $6,600 in interest every year. That is a lot of money to waste! Not matter how hard you work, it is your creditors and lenders who are getting rich – not you! If you did not waste that amount of interest, you can use that money to invest in your retirement. Or it can even be saved as part of your down payment for a new house.
Obviously, you need to learn how to solve your debt problems before you can hope to improve your financial situation. But what can you do if your debt has grown to unmanageable proportions?
4 strategies when faced with credit crisis
Despite the tough financial situation you are in, it is important for you to make an effort to solve your debt problems. Believe it or not, your debt is affecting the country.
Of course, staying out of debt is quite hard in this country. According to the data provided by CheatSheet.com, inflation is rising faster than income. It is not cheap to live in this country. If you want to live comfortably in your own house, put your kids to good schools, and buy the things that will make your family happy, you need to earn a lot of money. The income increase in the past 12 years is only 26% while the cost of living is 29%. Where do you think people get the 3% difference? It is either they cut back on spending or they borrow money.
If your debt problems have accumulated and are unsure about what you will do to solve it, here are 4 things that you can do to take control of the situation.
Wait for a while.
If you know that your current financial situation will change in the new future, it may be wise to just wait it out. At least, this is applicable if you do not have assets like a house that can be taken from you. This can be a stressful time but worrying over everything will not really do much anyway. It will only lead to illnesses that will make your situation worse. So just wait for a while and catch your breath. You need to relax, clear your mind and look into the future for hints of your next step to deal with you debt. You are not really ignoring your debt. What you are doing is leaving things as they are – for now. The law gives you enough protection that you will not land in jail and you will still be left with enough to pay for basic necessities. You can even get emergency housing assistance if you act fast enough. This is a great approach if you know that things will get better. Once you clear your mind, you can sure to find a solution to your debt problems.
Negotiate with creditors.
Another technique to help you with your debt is to talk to your creditors and lenders. Negotiating with your creditors can be intimidating but if you really have nothing left to pay your growing debts, you need to talk to them. If you sincerely express your intent to pay them back, they may be able to help you with a payment plan that your finances can afford. For instance, you can apply for deferment or forbearance so you can postpone payments without falling into default.
If your debt problems are really overwhelming, you have to consider getting professional help. There are debt relief companies that you can go to for help. You can go to a credit counselor so they can advise you of the best course to take. Since your situation is quite dire, you should consider getting in touch with a debt settlement company. They may be able to help you more than the other debt relief companies out there. They can assist you in getting a debt reduction. It can be the better alternative if you think you are on the brink of bankruptcy.
If debt settlement does not work, your last resort is bankruptcy. You have two options: you can declare a Chapter 7 or a Chapter 13 bankruptcy. To determine which one you can file, the court will perform a means test on you. If you can file a Chapter 7, your assets will be liquidated and paid towards all your creditors and lenders. Anything that is not paid will be discharged. If you qualify for a Chapter 13 bankruptcy, your assets will stay safe but you will go through a repayment plan that usually lasts for a few months to a couple of years. Once it is paid off, your remaining debts will be discharged.
How to recover from a bad debt situation
Recovering from overwhelming debt problems is something that you cannot accomplish overnight. This is something that you need to work on consistently. Here are a couple of tips that will help point you in the right direction.
Identify the cause.
Start by understanding why you accumulated so much debt. Is it because you spent more than your monthly income? Maybe you need to conduct a lifestyle check to analyze your consumer debt situation. Downgrading your lifestyle may be the solution to your problem. By identifying the cause of your debts, you should be able to solve your bad credit habits once and for all.
Use credit wisely.
We are not encouraging that you stop using credit. This is still necessary – especially if you have plans to buy a house in the future. You just have to learn how to use it wisely. Borrow only what you can afford to pay back and make sure you display a good payment behavior.
Control your spending.
Another thing that you need to work on is your spending. You have to control how your money is being spent by using a budget plan and creating a list of the things that you need before you head out on a shopping errand. This will be very helpful if you need to lower your lifestyle expenses to avoid incurring more debt.
Boost your emergency fund.
Sometimes, the overwhelming debt problems of some Americans are caused by huge medical debts. According to an article published on NYTimes.com, even those who have medical insurance are not necessarily in a financially secure position. The rising healthcare costs and the out of pocket costs will put you under. This is the reason why those with health issues are struggling with a lot of debt. To avoid this, you need to boost your emergency fund – and make sure it is really reserved for important expenses only.
It is not a guarantee that you can really avoid debt problems in the future but there are steps that you can do to keep it from ruining your life.