How to Manage Overwhelming Debt

Are you having a difficult time paying your bills because you’re knee-deep in debt? Are your creditors threatening to turn your account over to a collection agency? Is the possibility of losing your car or home real?

First, know that you’re not alone. Many people face financial hardships at some time in their lives. It doesn’t really matter what the cause: illness of you or a family member, overspending, loss of employment – that impending sense of doom overshadows everything and it’s seemingly unbearable and overwhelming.

However, there is a light at the end of the tunnel. Most financial hardships are solvable. No matter how big of a hole you have dug financially, you can take steps to lift yourself out. The horrible situation that you're currently experiencing doesn’t have to deteriorate beyond a point-of-no-return. There are many rational ways to deal with your debt.

Creating and Maintaining a Budget — There are quite a few free applications (see 6 Free Personal Finance Tools), available on the Internet to help you create a budget and manage your fianances more easily.

• Mint.com can help you easily and effectively manage and track all of your personal finances.
• A relatively new and revolutionary do-it-yourself online financial planning application is FinancialFate.com.
• AceMoney Lite offers a simple user interface with a variety of personal finance reports, budgeting and investment tracking support, including e-commerce features.
• MySpendingPlan.com is free online personal finance budgeting tool that works like a modern version of the "envelope system." It can help you manage different budgets while working at empowering you to reach your financial goals.
• ClearCheckbook.com is an online all-in-one personal finance tool that securely tracks bank accounts and spending and is accessible where ever you can access the Internet.

• The enormous advantage of GnuCash.org is its capability to support multiple operating platforms, systems and currencies. This easy to use system walks you through a step-by-step setup for various accounts and transactions for checking, credit card and investments.

Contact Your Creditors — If you are having financial difficulty, contact your creditors as soon as possible. Don't wait until your accounts are turned over for collection. Many creditors are willing to work something out with their customers before turning them over to debt collection.

Tell them you're currently having a difficult time making ends meet and explain the reason for your financial hardship. It's quite possible you'll be able to work out a short or long-term modified payment plan where your payments are easier to make.

Auto and Home Loans — There are usually two different types of loans: Secured and unsecured. Unsecured loans means the loan was taken out without having it tied to something of value that you own outright. Secured means that something of value that is paid off is tied to the loan and used for collateral.

The only way to get an unsecured loan is to originally have decent to excellent credit. If you borrowed money for your car and placed your home up for collateral, you can not only lose your car, your house as well.

Most loans involving vehicle financing grant the creditor to be able to repossess it anytime you're in default of the payments, without notice. If you get your vehicle repossessed, you'll have to pay towing fees and the remaining balance to be able to get the car back. If you're in danger of having the vehicle repossessed, it may be wise to sell the car yourself, then paying the debt off instead of having the repossessed mark on your credit.

If you are experiencing difficulty paying your mortgage (see Tips for Avoiding Foreclosure), contact your lending agency to see if something can be worked out. The lender may offer some type of assistance until you can get your life back in order like:

• Forbearance - An agreement that lets homeowners make reduce payments, or no payments for a certain amount of time.
• Reinstatement - An agreement that lets the homeowner pay the missed payments on a specified date.
• Modification - The lender agrees to modify the loan to make it more affordable for the homeowner.
• Deed-in-Lieu - An agreement that releases the borrower from most or all the personal indebtedness associated with the defaulted mortgage loan. It also avoids the foreclosure being made public record if foreclosure is the only option.

Credit Counseling — If you’re not disciplined enough to create and maintain a budget and stick to it, can’t work out some type of repayment plan with your creditors, consider contacting a reputable credit counseling organization.

Many credit counseling agencies are nonprofit organizations that work with individuals to solve their financial problems. However, just because an organization says it’s “nonprofit,” does not mean that its services are free, affordable, or on the level. In fact, some credit counseling organizations charge extremely high hidden fees, or urge consumers to make “voluntary” contributions that can cause even more financial hardship.

It's best to deal with a local agency that offers in-person credit counseling. Many universities, military bases, credit unions, banks and housing authorities operate nonprofit credit counseling programs. Check with your financial institution, local consumer protection agencies, family and friends for referrals.

Dealing with Debt Collectors —There is a federal law (called The Fair Debt Collection Practices Act), in place dictating how and when a debt collector may contact you. They can not call you before 8 a.m., after 9 p.m., or while you’re at work if the collector knows that your employer doesn’t approve of the calls. They are obligated not harass you, lie, or use unfair practices when they try to collect a debt. They must also honor a written request from you — by law — to stop further contact.