Manage Your Debt And Debt Relief Options
Managing your debt requires first deciding which bills take priority over others. Choosing what to pay first will depend on the type and character of the debt you incurred.
This article will explain why essential debts should be paid before non-essential debts and why payment of secured loans should take priority over payment of unsecured loans. Managing this process while also building out a reasonable monthly budget will require you first to take a deep breath and settle yourself. All too often, people get so stressed and anxious they are unable to focus on what needs to be done.
Putting financial trouble into perspective
For most people under the stress of life-changing financial trouble, being able to switch to a calm, mindful perspective sounds like an unrealistic expectation – especially if you have been receiving threatening letters and daily calls from collection agencies. True, but the fact remains escalating stress and anxiety will only make your situation more difficult to manage.
It’s easy to feel like you’re the only one going through financial trouble. Not true. According to the Food Research and Action Center, nearly 37 million Americans live below the poverty line, and those with children cannot buy enough food for their families.
While there is good reason to be concerned about your financial future, the first priority must be to manage your emotional well-being.
Remain calm and focused
You may need more income to meet current family obligations or afford to retain a lawyer to respond to creditor lawsuits. However, there are immediate actions you can take right now to improve your situation now.
Let’s begin with eliminating collection agency calls. The goal of collection agencies is to separate you from your money by putting you in a perpetual state of fear.
Putting a stop to collection calls
End the stress and fear caused by obnoxious and abusive collection calls. Here are specific ways to identify and stop unlawful collection practices.
Under state law, debt collection calls are only permitted within certain hours, and they are not allowed to call you at work once directed not to do so.
Concerning legal collection call hours, consider unhooking your phone during those hours and purchasing a burner phone to make and receive calls from family and friends.
Once debt collection calls are under control, the next priority is to develop a strategy to reduce your non-essential debt from your essential debt.
Prioritizing your debts
Once you determine which debts you need to keep (which may not include your $100.00 cable television subscription), the next step is to create a realistic budget.
To know how to prioritize your debt payment, you must understand which debts are essential and time sensitive and which are not. Not knowing causes uncertainty, leading to anxiety and poor financial decisions.
You are about to prioritize your monthly debts and expenses based on which obligations and costs are necessary to survive the financial storm. So gather all of your bills in one location. Get a pad, calculator, and a bunch of sharp pencils. Take some deep breaths or whatever works best for you to calm yourself.
As a general rule, you first want to prioritize between essential and non-essential debt. Second, you want to prioritize between secured debt versus unsecured debt.
Essential debt versus non-essential debt
The goal here is to determine which debts need to be addressed immediately and in what order of priority. You do this by listing debts essential to keeping you and your family fed, clothed, and sheltered.
Depending on your current situation, you may only need a car in certain circumstances where a car service like UBER/LYFT is less expensive. For example, you may pay a $300.00 car payment plus another eighty-five dollars a month in car insurance. Plus, you can save on parking.
If you have an old car that works and has no debt attached, use it, don’t sell it. You might have a relative or friend that will lend you a car they no longer use.
It might make sense to get rid of the high payment in exchange for something much less expensive. Depending on where you live, public transportation might be a feasible alternative. There are many possible options available to you, such as carpooling.
Unsecured Versus Unsecured Debt
Two Types of Debt
When prioritizing payment of your debts, you must know the difference between secured and unsecured debts.
Unsecured Debt
These loans are also called signature loans. No collateral is required. The money lender lends the money based solely on your promise to pay back the loan, principle, and interest under the loan agreements’ terms.
The lender of these types of loans requires excellent credit for reasonable rates. An unsecured loan is still possible if your credit is less than perfect. Still, the interest rates may be significantly higher.
Secured Debt
A secured loan gives the creditor co-ownership rights to the collateral. For example, when a car is financed, the bank remains on the pink slip until the loan is fully repaid. If the owner defaults on the loan, the bank has the right to repossess the vehicle and sell it at auction.
There are many types of home loans. The most popular type of secured loan arises out of your ownership of real property. Known as mortgage equity loans, the collateral pledged to secure repayment of this type of loan is the property itself. If you default on your loan, the moneylender can force you into foreclosure and reclaim the loan balance from the sale of the proceeds of the home.
Your home mortgage
Your home mortgage is a classic example of a secured loan. The security you pledged in your home loan is the home itself. It’s usually best to pay your home mortgage first. This includes property tax and insurance since the lender may hold you in default if not paid.
The immediate goal is to keep a roof over your head while you are figuring out what your financial strategy will be. You can usually hold off paying a mortgage payment for two months without being in immediate danger, but no more.
Also, be sure to keep that amount in reserve should you decide to keep the home and make those mortgage payments or relocate to a less expensive rental, in which case you will need that money for relocation and future rental costs.
Letting your home fall into foreclosure may be the best alternative under the circumstances. Still, you will know that once you see the complete picture, get advice from a financial expert, compare options, and formulate your action plan.
For example, suppose you choose to give up your home through default, depending on your specific situation. In that case, you may be legally allowed to live in the home for many months before vacating. You do not want to leave prematurely. Stay in the house until you legally must exit. You will need the money you will be saving.
Your rent
Suppose you are renting and need to find a less expensive place to live. In that case, you will need to know the legal consequences of terminating a month-to-month tenancy or moving in the middle of your lease.
Trouble Tip: Helpful information on relocation, moving and storage.
Utility bills
Pay the minimum to maintain service and avoid disconnection. Many municipalities have programs you can apply for to receive utility bill discounts or even suspend your payment obligations for a specific period. Call your utility provider to see if this is an available option for you. You can also look up the utility bill discount resources in your state.
Child support
Child support is one debt you must give a very high priority. Failure to pay court-ordered child support. Failure to pay Child Support carries severe civil and criminal consequences. If you cannot make the payment, try to work out a child support modification plan with your former spouse.
Income tax
You must pay income tax. If you are unable to pay your taxes, you must still need to file your tax returns. The IRS will usually allow you to make The IRS also offers a Hardship Program for people facing financial hardship. You will want to see if you qualify for their program. Find out what kinds of property the government can attach for unpaid taxes.
Legal judgments
Suppose you are paying on a money judgment that was lawfully filed and perfected. In that case, while technically, the judgment creditor can levy on your bank accounts or garnish wages, you should first determine if your state has enacted consumer protection laws that prevent creditors from financially collecting depending on your income and assets.
If not, your creditor might have to cease making collection efforts because you are legally considered judgment-proof.
Student loans
Government student loans are not low-priority debts. The law gives the government priority over other types of loans, even in bankruptcy. This includes garnishing your tax refunds and preventing you from obtaining new student loans. Notwithstanding, given these extreme collection measures, you may be eligible for government-deferred payments or affordable payment plans.
More Debt Relief Options
The bankruptcy option
Filing for bankruptcy is often considered a last-resort option. However, bankruptcy can be the most reasonable solution, particularly if you cannot repay your essential debts and are determined to be food insecure.
The stated goal of bankruptcy is to prevent debtors from financial ruin and crushing debt by offering debtors a fresh start.
Most consumers file under Chapter 7 of the bankruptcy code because it offers a more comprehensive discharge of debt. Examples include credit cards, medical bills, utility bills, and unsecured loans.
There are, however, specific debts that are not dischargeable, such as taxes, child support obligations, and certain types of student loans. Filing for bankruptcy will impair your credit.
Learn more about Bankruptcy Law
Consumer credit counseling
There are many types of credit counseling companies. However, as a consumer, you must be cautious and perform your due diligence before doing business with them.
Credit counseling companies can help you manage your debt. Some of these companies do very good work. However, make sure you have selected a government-approved credit counseling organization. The Department of Justice publishes a list of approved credit counseling organizations.
Debt relief programs
There are a variety of debt relief programs available to consumers. The purpose of debt relief is to reduce and consolidate a person’s debt and provide the debtor with a more manageable monthly payment schedule.
Debt relief programs work by attempting to negotiate a lower amount of repayment with your creditor. They do this by trying to extend the payment terms of your debt and/or by replacing your existing debt with a new loan with lower interest rates and an extended period for repayment.
Beware of Debt Relief Scams
Be extremely cautious when choosing a debt relief company. The debt relief industry has had a reputation for being highly unethical and interested in only enriching themselves.
Before doing business with a debt relief company or debt settlement service, check them out with the Better Business Bureau and the Department of Justice (DOJ).
The DOJ maintains a list of all approved and credentialed consumer credit services by state.
