In the current recession, how to get out of debt is a question that is affecting more and more people. It is quite easy to get into debt when you go through a bad patch financially. You may have lost your job, had a long time off sick or be adjusting to reduced income. You let the credit cards mount up or take out a loan thinking that things will quickly be back to normal and you can pay everything off.
But often, it does not turn out to be so easy. Maybe you can’t find another job, or your company cuts back on your hours permanently. Even if the situation is resolved and your income goes up again, debt is usually not as easy to pay off as you expected it to be.
Debt is a burden both financially and psychologically. No one wants that kind of cloud hovering over them. People concerned over their debts can be more prone to fall for the “get rich quick” style of investment scams. In their desperation to solve their debt problem, people may not be as cautious as they should be.
The best and simplest way to get out of debt is just to keep making your monthly payments on time. Yes, this will take you a long time, but sometimes it is the only option. Budget for it. Treat your debt payments like other fixed payments such as your mortgage or rent. That money is not available for spending.
The real trouble begins when you cannot make your monthly payments. Maybe your income has decreased, interest rates have risen, or you have new or larger expenses than before. What are your options?
- If you haven’t already, start with smaller steps like switching to lower interest credit cards, reducing spending on discretionary items, and reducing expenses. It may be that cable TV or your smartphone have to go until you get your finances under control.
- Talk to your bank or credit union about a consolidation loan. This allows you to pay out a lot of small loans or credit card debts with one large loan. This one monthly payment is often much lower, especially if your debts are mainly on high interest store accounts or credit cards. Simplifying this way is also good for those with issues managing money and keeping track of all their debts.
- Most loans (including credit card balances) can be renegotiated to give you longer to pay. This will mean smaller monthly payments, or possibly a ‘payment holiday’ if you simply cannot make your payment this month. This does not have to be as scary as it sounds. Create a suggested payment schedule before you call before you call, then explain your situation truthfully and tell them what you suggest.
- As a last resort, you may have to consider bankruptcy. With bankruptcy, you have a court declare that you cannot pay your debts and will not be able to do so in the foreseeable future. You give up all you have and your creditors have to accept whatever they are awarded. Don’t be fooled – this is not an “easy out.” You may lose your home (if you own it), your car, and any savings that you have.
One of our Twitter followers, and the winner of our recent holiday contest, has declared 2010 as the year she takes control of her debt. She is writing about her plan and her struggles at her new blog, Debt Blasting. I encourage you to follow her process.
Related posts:
- Avoiding Student Debt Last post discussed the use of the Canada Education Savings...
- Strips and mortgage-backed securities Continuing our Investments at a Glance summer series, today we...
- Five Tips for Controlling and Enjoying Your Holiday Spending It’s the 8th of December and my holiday shopping is...
- Bonds and Debentures A bond is a loan to a government or company...
- Your sources of retirement income Last week we talked about how much money you will...
Share & Bookmark This Story!
Bookmark on Delicious 
StumbleUpon 
Google Bookmarks
Tip'd
Financial Post Headlines
{ 0 comments… add one now }