Self-Help Guide to Debt
Developing a Budget
Creating a budget is one of the most important things you can do to take control of your financial situation. You will never be able to successfully reduce your debt or make positive changes in your spending habits if you don’t have a budget. This can seem like an overwhelming task if you have never done it. But it’s not as complicated as you might think. First, make a list of your income. This is your take-home pay and any other sources of money you have. Next, make a list of your fixed expenses. These are the items whose amounts remain the same from month to month- mortgage, rent, insurance, car loans, and any other debt you owe with a fixed amount due. Then make a list of all your other expenses- credit card payments, utilities, gas, food and entertainment.
Be sure to include all your expenses. You need to have an accurate number of what you owe if you realistically want to reduce your debt. Make your budget realistic. If you spend $500 on food every month and only budget $350, you are doomed to fail. Start keeping all of your receipts. This not only shows you how much you are spending, but also exactly what you are buying. When you see $100 worth of receipts for cappuccinos every month, this shows you where you can make significant cuts in your spending.
You can find useful information about creating a budget and other money management techniques at your public library, at bookstores, and on the internet. There are also software programs available which can guide you through the process of developing and maintaining a budget, help you keep track of your bank accounts, and show you ways to save money and reduce your overall debt.
Contacting Your Creditors
It’s important to contact your creditors as soon as possible when you are having difficulty making your monthly payments. Loans which are secured, such as a mortgage or car payment, are the most urgent. Call these creditors first. Next contact your credit card servicers and utility companies. Explain the situation to them and find out what options are available to help you get through this tough period. Most companies will work with you to come up with a modified payment schedule that allows you to make smaller payments for a specific amount of time. The earlier you call these companies, the better. Don’t wait until your accounts are all past due and the debt collectors have been notified.
Dealing with Debt Collector
If you are being contacted by debt collectors, you already know the stress it can cause. But it’s important to know your rights, also. The Fair Debt Collection Practices Act is a federal law that protects consumers from unethical debt collectors. It states that a debt collector may only contact you between the hours of 8 am and 9 pm. If your employer does not approve of calls made to you at your workplace, debt collectors may not call you there. They must always treat you with respect and cannot use foul language or threaten you in any way. If you send a written request that they stop contacting you, the debt collectors must honor it.
Managing Your Auto and Home Loans
Most people have two types of debt- secured and unsecured. Secured debts are normally tied to a physical asset, such as a car for a car loan and a house for a mortgage. Second mortgages are also considered secured loans since they are directly linked to your home equity. If you fail to make these payments, lenders can repossess your car or begin foreclosure proceeding on your home. Most other debt is unsecured, such as credit cards, medical bills, department store charges and other personal loans.
Automobile loan companies have the right to repossess your car at any time when you stop making your payments. They are not required to notify you. Once this happens, you will most likely have to pay the entire balance due on the loan, plus any towing and storage fees. If you are unable to do this, the lender can sell your car and keep the proceeds. If you think you might be in danger of having your car repossessed, you can try to sell it on your own and then pay off the loan. You won’t have a car, but it will save you the additional costs of repossession and there will be no negative report in your credit file.
If you are behind with your mortgage payments, you should call your mortgage servicer immediately to avoid foreclosure. Explain your financial situation to them and find out what options are available. It’s important to contact them as soon as possible so that they can know the situation and understand that you are making an honest effort to remedy it. Most lenders will work with you to come up with an arrangement that allows for smaller payments over a specific amount of time. You should always get the details of your agreement in writing along with a listing of any fees or penalties you may be charged at some point.
If you and your mortgage company cannot arrive at a solution, contact a housing counseling agency. Call your local office of the Department of Housing and Urban Development (HUD) to find a reputable and legitimate housing counseling agency in your area.
