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Managing Your Debt and Becoming Debt Free
Let’s face it the amount of debt you have significantly effects your credit report. And today your credit report is used for a lot more than getting approved for a loan. It can affect your employment and prevent you from getting a job, in some cases can cost you your job. It can even prevent you from getting and a nice apartment.
Today it is very easy to go from good credit to bad credit due to debt becoming unmanageable. It can result from a job loss like downsizing, divorce, and medical emergencies. In today’s economy a job loss can last for many months and at times well over year, causing you to fall behind on bills. In a divorce you can see a loss of income putting a strain on your commitments. If you don’t have medical insurance, pray you don’t get sick. Medical bills can add up quickly to well over $10,000 or more.
So what do you do when you find your debt is out of control and you have become late on some or all of your bills? First try not to panic, this is harder than it sounds once in awhile, especially if you are getting letters from creditors or being sued by your creditors. Remember there are no debtors prisons and they can’t take everything. Now that you have calmed down, take an inventory of everything you owe and at the same time get your credit report. The credit report will give you a list of what you owe as well. Also look up the Fair Debtors Credit Protection Act, this is your rights, it outlines what a debt collector can and cannot do or say.
I would also suggest getting a book called “Debt Cures” or “Debt Cures 2” by Kevin Trudeau. You can get this book from online or from any bookstore. The book gives you sample letters you to your creditors as well as some other good advice. It also talks about State Statute of Limitations on debt collection. All states have a time period once reached debt collectors can no longer attempt debt collection. The time period starts from the date the original creditor reported to the credit agency regarding your debt. Once this time is reached Debt Collectors can no longer collect and it can also be removed from your credit report.
Once you have done this, separate your bills into 3 areas: 1) slightly late or not late, 1-2 months, 2) moderately late, 3-6 months, 3) late, 6 months or more. At 6 months most creditors will write off the debt and sell it to a collection agency. After you have done this let’s look at your budget, you want to know how much money you are bringing home compared to your essential outgoing amounts. Outgoing things that need to be paid are rent or mortgage, utilities (water, heat, electric, etc), phones, food, and gas. There may be some more based on your family needs. Subtract that out of your total take home amount and this leaves you with your disposable income. From your disposable income you will need to decide what amounts you can pay your creditors while leaving a some for you to begin building a savings fund. I would suggest starting with $10.00 to $20.00 a week for a savings fund, you will raise it when you can.
Calling Your Creditors
Now for the bills that are not late or slightly late it’s time call your creditors. Explain to them what is happening and request an interest rate decrease or help with lowering the payments for a short time. Most creditors will reduce your rates or payments for a year as long as you let them to take automatic payments. If one of them says we can get your payment down by $20.00 and you can afford it send them additional $20.00 or even $10.00. This shows good will and let’s them know you intend to pay your debt. As soon as one bill is completely paid, take ½ the amount you were paying them and add it to your monthly savings, the other ½ will be applied to the next bill.
Also call the creditors that are moderately late and go through the same process. Most of your disposable income if not all should go to the ones that are not late or slightly late, because they are already sending good reports to the credit reporting agencies, and we don’t want to jeopardize those. Don’t worry about the super late bills, they have already been trying to contact you, although you should talk to them, they will put more pressure on you.
Once you have made your calls and payment arrangements, put the plan in action. It will take some time, after all your debt was not created overnight, you cannot fix it overnight. Remain diligent and disciplined and your debt will begin to diminish and disappear. Oh, one more thing, the most important thing to all this is to NOT continue to increase your debt. This means no more charging, pay in cash, once you are debt free, we can look at that and determine if it will be beneficial. Staying disciplined you will be out of debt, so keep thinking of the day you are debt free. Good luck I know you can do it.