You have studied your financial obligations carefully, and you realize that there is simply no way to make ends meet. You just can’t pay all your bills. Maybe you’re not ready to consider filing for bankruptcy. What can you do? Fortunately, there are many steps you can take on your own to deal with your debt problem.
By: Hitesh Khan/
When you find yourself in financial trouble, your immediate concern should be to slash your cash outflow as much as possible. If you’ve been prepaying your mortgage, car loan, or other debts, put that plan on hold, at least temporarily. If you’ve been making more than the minimum payment on your credit cards, scale back to minimum payments until you get your finances straightened out.
This small step may be enough to solve your problems, especially if your financial troubles are temporary in nature. Make sure you can comfortably make the required monthly payments on all your bills before you go back to making larger payments. If you don’t have enough money to make even minimum payments, you’ll need to take further action.
With financial obligations, you have to prioritize repayment.
Divide your debts into two categories
If you are unable to meet all your financial obligations, you may pay some bills and leave others unpaid for awhile. You will need to determine which of your debts are essential and which are nonessential. The general guideline is that an essential debt is one that could create serious or even life-threatening problems if it weren’t paid.
Failure to pay nonessential debts would have far less serious consequences. Whether or not a particular debt is essential will be dictated by your individual situation. Common essential debts include mortgage payments, utilities, child support, school tuition, medical insurance, and secured loans. Nonessential debts may include credit cards, loans from friends and family members, other unsecured debts, nonessential life insurance, and newspaper and magazine subscriptions.
Pay essential debts first
Your essential debts should obviously be paid first. If you can’t pay all your essential debts, you may need to prioritize this list and move the least essential to the nonessential list. For example, if you can get around without a car, your car payment might be moved to the nonessential list.
Pay nonessential debts with any remaining money
You shouldn’t pay any nonessential debts until your essential debts are all paid. If you have money left for nonessential debts, you should prioritize this list and pay the most important of the nonessential debts first. For example, life insurance premiums should generally be paid before magazine subscriptions.
Remember that you are still responsible for all your debts and financial obligations, whether or not you are currently paying them.
Although you may not be able to pay all your debts at the moment, don’t expect them to just go away. In most cases, interest and late fees will continue to accumulate, making the unpaid debts even larger. You will need to cut your expenses as much as you can in order to make repayment possible. You may need to negotiate new repayment terms with your creditors in order to prevent even more serious financial troubles.
Negotiate with creditors
If you are in financial trouble but you honestly want to do the best you can to pay off your debts, you may be able to negotiate with your creditors. In order to avoid the collections process, many creditors will reduce payments, extend your repayment period, waive late fees, or sometimes even accept less than full repayment. If you can negotiate your repayment terms, you may be able to get through your financial crisis without ruining your credit record.
Notify creditors of trouble as soon as possible
One of the keys to successful negotiations is to let your creditors know about potential problems as soon as possible. Explain the situation–job layoff, medical emergency, whatever. Let the creditor know what you’re doing to remedy the problem (e.g., looking for work, cutting costs at home). Specify whether you need a temporary fix or long-term relief, and continue to send at least token payments as a sign of your good faith effort.
With financial obligations don’t expect perfect results
Unfortunately, many creditors refuse to negotiate with debtors. You may find that some of your creditors are not willing to accept partial payments or to extend your loan term. But it is still in your best interest to make an effort to negotiate. This could be your last chance before you are forced to file for bankruptcy. If you are in the brink of bankruptcy but believe that you can avoid it with some temporary financial help, you should consider a legal money lender to tide you over a difficult period and financial obligation.
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