Succeeding in indebtedness can sometimes seem like an insurmountable challenge. Before giving up, however, make sure that you are not committing any of these common mistakes.
Ignore the problem
Your problems will still be there tomorrow morning if you do not address them today. You can make arrangements and hide from your creditors; you can send all the letters you want, your debt will always be there as long as it will not be paid.
You have to face your debt. You must assume your share of responsibility. Certainly, if a portion of your debt is fraudulent, or if there is a sum that has been added to your debt in error, follow the steps necessary to dispute it. However, if your debt is legitimate and fair, acknowledge that you owe it and create an action plan to settle the account. You will find it surprising how the simple recognition of your responsibilities can alleviate your worries!
Get a consolidation loan with a co-signer
If you are able to make your payments but find it difficult to reduce your balances due to too high interest rates, it’s time to think about a consolidation loan. A lower interest rate will allow you to pay more than just the interest and the minimum due; you will reduce your balances and you will begin to see the end of your debt on the horizon.
If you do not qualify for a consolidation loan on your own, or if you find it difficult to pay even the minimum on your existing loans, it is likely that a consolidation would be too risky – especially for a potential co-signer: if you do not fail to make your payments when they are due, or if you fail to meet the minimum payment, your co-signer’s credit rating will be affected as well as yours, which will not only affect your ability to to borrow, but also to your relationship with your co-signer.
Account closure overdue
The outstanding credit account closure will certainly prevent you from making use of it and increase the balances you have to pay, but you will still have the same accrual of interest and you will still have the same payment obligation. A closed account always accumulates interest charges and always affects your credit rating – especially if you do not make your payments. In addition, the proportion of your credit used versus your available credit is taken into consideration when evaluating your credit rating, so closing accounts or there is still a credit available do not render you any service.
But if you do not close your outstanding accounts, it is important not to contribute to the increase of their balances. If you try to pay your creditors, you will not see any progress as long as you keep adding to what you owe. All in all: destroy your cards to remove the temptation to use them, but keep the accounts open to protect your credit.
To think that a credit counselor is absolutely necessary
Do not hesitate to formulate your own action plan. Do you have only a few overdue accounts? Call your banks and financial institutions and ask if there is an opportunity to make a payment agreement or if there is an opportunity to lower your interest rates. Most lenders will be happy to find a way to help you if you are sincerely seeking to pay for what you owe.
Despite this option, you may decide to use the services of a credit counseling agency. In the past, this remedy would have hurt your credit rating, but things have changed. The new regulations simply state that you are using the services of an agency. That being said, be aware that agencies will often charge you monthly service fees and that the plan they develop may take several years to complete. It is therefore important to undertake this path with caution.
To think that it is easy to declare bankruptcy
Bankruptcy is not easy. Far from it, the path to credit rehabilitation following a bankruptcy is long, complicated and you will need to discuss every detail of your financial life in bankruptcy court. Bankruptcy does not protect you, either, from your mortgage payments, student loans, or all the expenses associated with the bankruptcy declaration itself. Plus, your credit rating will carry the black mark of your bankruptcy for years.
If you still believe that bankruptcy is a possibility for you, consult a bankruptcy professional immediately. Your financial situation will only get worse if you delay seeking the necessary advice. That being said, it is not an obligation to meet with a bankruptcy lawyer before starting the process, but this consultation will allow you to know what avenues are available to you and to see if the bankruptcy is reasonable in your situation.
Pay your debts with your retirement funds
The temptation to use your retirement fund – an account full of funds that belongs to you – when your creditors knock on the door can be hard to resist, but it is imperative to let it go! That you are desperate, that you think you are buying peace by using these funds to rid your debt, you will despair even more during your retirement when your wool stocking will be empty and that there will be new accounts payable. Your retirement accounts are protected from your creditors, even if you are recovering, even if you pay your salary to pay what you owe. Respect the wisdom of this protection and do not touch it!
Paying your debts takes a sustained commitment and a little courage, but avoiding bad habits and harmful actions to your financial future will help you meet your goal. And when you start to see real progress, you’ll find yourself more confident and ready to face your next challenge!