Responding to Your Financial Situation
People get into debt for a variety of reasons, but for many people the situation soon becomes overwhelming. As a result, debts soon go into arrears. Creditors begin to call to demand payment of the overdue bill, creating a vicious cycle by which the more demanding the calls become, the more the debtor tries to avoid the problem. In time overdue bills are handed over to bill collection agencies at pennies on the dollar, for the simple reason that most creditors would rather get something out of a debt than continue to spend money trying to collect it.
When a bill goes to a debt collection agency, things can get ugly very quickly. Although there are Federal laws regulating how these agencies are supposed to operate, many agencies regularly ignore the law, knowing that most debtors are so ashamed of their out-of-control debt that they will be reluctant to contact law enforcement agencies. As a result, bill collectors are regularly caught on tape committing such abuses as using profanity, making threats of violence against the debtor, their families or their possessions, and even threatening to get them in trouble with their employers or the law.
It is far better to avoid letting one's debt situation get to such an extreme. Living in denial is tempting -- our distant ancestors on the African savannah often survived by hiding and staying very quiet until the leopard or the hyena went somewhere else -- but financial trouble is not the sort of thing you can hide or run away from. You have to deal with it squarely.
Each person's debt is individual, and what works well for one person may well prove a disaster for another. However, some general principles apply. First, you absolutely must get a handle on just how much you owe, how much you need to pay each month to stay current on your loans, and how that stacks up against what you have coming in each month. Second, you must know how much you are spending on daily living each month, because it won't help to pay off your old debt if you keep charging things like food and gas to your credit card.
Once you have the figures in hand, you can start figuring out what changes you need to make to get your financial life back in order. You may discover that you have some unnecessary purchases every month that can be trimmed away, freeing up money to go toward knocking down your balances on your revolving credit accounts. If you're missing payments because you have so many that you lose track of one or two every month, a consolidation loan may help you keep current on all your debts (however, make sure you cancel the lines of credit you're paying off so you can't build up more debt on them).
Above all, don't try to hide from your creditors. If you're having trouble keeping up with your payments as a result of an unexpected emergency expense or a sudden reduction in your income (for instance, a job loss or reduction in hours), explain the situation to your creditors. It may be humiliating to have to admit that you can't keep abreast of your bills, but creditors are often willing to work with you if you can show that you are willing to work with them instead of trying to hide from them or give them lame excuses when they contact you.
Even if you're current with your bills and making your minimums, it may be possible to work with your creditors to get a more livable deal. For instance, it may be possible to get your interest rates lowered, which will enable you to have smaller minimum payments. If you can keep paying more that the new minimum, you'll be paying off the debt faster because more of each month's payment will be going to principal. However, this may involve a reduction in your credit limits, which can have negative effects on your credit rating because it shifts the level of credit utilization.
If your debt problem is severe, you may need to enlist the help of a professional. There are a wide variety of financial counselors out there who can help you maximize your handling of money so that you can get your debts paid off. However, be careful about credit counseling agencies. Although some credit counseling services have helped families develop good spending habits and create a sustainable financial situation, far too many have effectively become collection agencies for creditors and often sign on people who should've been referred to a debt collector instead.
Whatever your financial situation, you must take charge of it. You must regain control of your money if you are to have control of your life.
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