If too much debt is threatening to sink your ship, the following tips may help you maintain stability and weather the storm successfully.
By: Nithila Vijayan
1. Examine the Reasons Behind Your Crisis of too much debt. Solving financial problems requires that you understand the underlying cause of the crisis. Examine the reasons objectively. If you have health issues, loss of employment, or have sustained damages from a natural disaster, there are agencies that can help you. Do some research and don’t be afraid or embarrassed to ask for help. If your money problems are a result of poor management or overspending, don’t berate yourself. Maintaining your self-esteem and a positive attitude will enable you to make good rational decisions so you can work your way out of debt.
2. Analyse and Categorise Your Debts. Debts fall into two categories, secured and unsecured. Secured liabilities are guaranteed by property, either real or personal. A mortgage is a secured debt. An motorcar loan is a secured debt. Credit card balances are the most common example of unsecured debt. List all your debts and determine which category each of your debts falls under.
3. Prioritize your payments. When you are in a financial crisis, the payment order for your bills should be determined by their importance in sustaining and maintaining your life. Keep in mind that, if you don’t make the payments on a secured debt, the creditor can ultimately take control of the property used for collateral on the loan.
4. Cut Expenses. If you are in too much debt, look for ways to reduce the amount you pay out each month.
Trimming the fat from your budget requires diligence and sacrifice. Pack a lunch, use grocery store vouchers, and search out free entertainment. Learning to save and live more frugally can be a giant step towards financial stability.
5. Increase Income to overcome too much debt. There are a number of ways to increase income. A second job may provide the extra funds needed to improve your financial status. However, take into consideration the expenses that may be associated with working longer hours, such as childcare and transportation. Selling personal property is another option that may help you overcome a financial crisis. Just be sure to get the fair market value of the property and don’t part with items that will cause you emotional distress.
6. Communicate With Your Creditors, But Don’t be Intimidated. Ignoring phone calls and email from your creditors may only make matters worse. You need to know what actions your creditors are planning to take against you, so you can take appropriate measures to protect yourself from lawsuits or the loss of an asset. Keeping the lines of communication open makes negotiations and settlements possible.
7. Develop Good Bookkeeping Procedures. Keep your cash accounts balanced and in good order. When finances are being stretched, it is imperative that you know exactly how much cash you have to work with. The secret behind good accounting practices is organisation. If you don’t have a filing system for your bills and cash statements, set one up. Discrepancies in your cash accounts should be checked and verified with your bank as soon as possible. Never write a post-dated cheque. Never write any cheque without making sure your account contains enough funds to cover it. The fees and penalties banks charge for returned cheques are high and will only worsen your financial situation.
8. Consolidate with Care. If you are a private homeowner, you may be able to qualify for an equity loan to consolidate your bills into one easier-to-manage payment. Remember that a home equity loan means that you are tapping into the cash value of your house. There are many different types of home equity loans, but before you sign on the dotted line, check out the lenders and make sure the one you work with is reputable. A consolidation loan can be a permanent solution to your money woes, but you must have the discipline to cut up your credit cards and change your spending habits.
9. Credit Counselling when You Have Too Much Debt. A reputable credit-counseling service, such as Credit Counselling Singapore, can be a viable solution for long-term financial problems. In addition to providing valuable financial education, they also offer workable debt management plans. This is not a quick fix. However, it is one of the most sensible ways to get out of debt and stay out of debt.
10. Bankruptcy. This option should be viewed as a “last resort.” You need competent legal advice and guidance before, during, and after a bankruptcy filing.
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