Debt is a way of life in the modern world. However, it’s very easy to get in over your head and let the debt pile up to unmanageable levels. Since we can’t function in our society without money, it’s critical that we avoid debt while managing our cash carefully.
How to Stop Making More Debt
Take the credit cards out of your wallet on your next payday. Take a look at the statements on the credit cards you use the most and make an average of what you spend on the necessary vs. the unnecessary purchases. For example, groceries are a necessary purchase. Takeout restaurant food and pizza delivery are unnecessary.
If your debt is getting scary, you are going to have to set some hard lines to get a handle on your spending. Going back to cash is a great way to start. Get an average of what you spent on groceries last month, divide that by four, and take that much to the grocery store this week. Check the sales first and only put in your cart what you know you’ll eat. Keep a running tally of your expenses so you stay within the cash in your wallet and stop using your credit cards.
How to Pay Down the Debt You Have
Gather all your bills in one place and list them by the total balance due. A computer spreadsheet is really useful here, so you can sort it quickly. In addition to the balance due, list the interest rate and the minimum payment.
To start, sort them by the total balance due. Since you’re not using your credit cards, this shouldn’t go up, even if the minimum payment is only enough to keep the total balance from going up. Pay down the smallest balance first.
Two things may come of this. First of all, your credit rating will get a good “ding” because you paid off a balance. Secondly, your credit card company may offer you a balance transfer of 0% APR for a specific length of time. Go back to your spreadsheet and re-sort your debts by interest rate. If you can pay off any credit card debt in full with the balance transfer and pay off the total debt within the time allowed, make the transfer.
When You Just Can’t Pay Your Bills
There are points at which all you can do is keep a roof over your head. For too many citizens, the 2020 pandemic has led to a dangerous financial crunch. A debt settlement company may be able to help you renegotiate your current debt into something more manageable over time as you get back on your feet.
There are pros and cons of debt settlement; one of them may be that your credit rating takes a hit as you come out of your personal financial challenge. However, your debt settlement company may be able to protect you from having to file for bankruptcy.
When to Consider Bankruptcy
Too many of us may eventually face debts that we can never pay. A serious medical condition may make it impossible to keep your job, which means you lose your health insurance, which means you become buried in debt.
Be ready to seek further professional help. A bankruptcy attorney can help you file a protective action that will limit your losses in the years ahead. For example, depending on the state you live in, bankruptcy protection may mean that you can
- keep your house
- keep your car
- create a payment plan for these debts
- get the insurmountable debt off your back
If you’re facing garnishments, it’s time to talk to an attorney. Someone who has the right to garnish your wages can take up to 25% of your income before you see your check. If you leave your job and get another, the garnishment will start again as soon as they find you.
If you’re still working and can get a handle on your debt before you need to talk to a debt settlement company or a bankruptcy attorney, do so. By getting a handle on your money while it’s still coming in, you can gain the confidence and skills needed to make good decisions in the future.
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