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The so-called “economic recovery” notwithstanding, thousands of Americans are still deep in debt, facing foreclosure or simply unable to make ends meet. Whether you have a few hundred dollars worth of debt or thousands, owing money can keep you up all night.
If you’re just teetering on the brink of making your monthly payments, the threat or fear of job loss can be cause for concern, as losing your job could send you over the edge into bankruptcy.
Here are three steps to take control of your debt rather than permitting it to control you:
1. Come up with a plan.
You never know how bad things are until you sit down and really figure out how bad (or good) things are.
Use free budget planning software like Mint.com, or just a plain old Excel spreadsheet, and write a budget. Include all your minimum monthly payments on your credit cards. These payments will go down with time, but, as they drop, don’t decrease the amount you pay. This will save you hundreds (or thousands) of dollars in interest and help you get out of debt faster.
Writing a budget is the first step toward feeling in control of your financial future. You may realize you’re wasting a lot of money each month on things like lunches and dinners at restaurants, entertainment, or happy hour. That’s when you can decide to set your priorities and put the extra money toward getting out of debt.
If you calculate your budget and discover that old problem of too much month left at the end of the money, at least now you know this with certainty.
See if you can get your interest rates lowered, work out payment plans or consolidate your debt.
The National Foundation for Credit Counseling (www.nfcc.org) can help if you are deep in debt and can’t see a way out.
Your car and then your mortgage are the most important payments to make every month.
If you lose your car, you may have issues getting to work, and that can create a downward spiral of deeper debt and more money troubles. If you lose your home and your credit is in bad shape, you may have a tough time finding another place to live.
Missing credit card payments may cost you money and hurt your credit score, but you’ll survive.
3. Know your rights and your credit card benefits.
Some credit card companies permit you to take a payment holiday with absolutely no adverse affect on your credit score.
If you’re going through a temporary tough time due to illness, taking care of an aging parent, a birth or death in the family or other circumstances and feel a month’s break from credit card payments will help (maybe to help you make a mortgage or car payment), do so.
Remember, it’s not an interest-free break. You’ll continue to accrue finance charges even as you don’t make minimum payments.
We don’t normally recommend credit card insurance. However, if you’ve already been paying into it, see if you can use it. It may be that your existing credit card insurance can help you keep your home or car.
If you don’t already have credit card insurance, I usually recommend against it.
There’s only one situation I may recommend purchasing credit card insurance: If your company has made major cutbacks and you see your job next on the chopping block, it makes sense to sign up now for insurance that will stop your payments if you lose your job. You can always cancel if you realize, later, that your job is secure.
The point of insurance is peace of mind. If the extra money (usually 1 % of your outstanding balance) helps reduce your stress, get the insurance.
4. Don’t ignore your debt.
The worst thing you can do if you are deep in debt is to ignore the problem and wish it would go away.
No matter how hard you may try to ignore calls from collection agencies or that mounting pile of bills, the stress will eat away at you, making it difficult to concentrate on your job or anything else. Whether you decide debt consolidation, bankruptcy or simply paying off your debts slowly is the best way to go, take action today.
Just knowing that you can control the situation in one way or another will help relieve your stress.