Debt has a tendency to creep up on you when you're already down -- when you've lost your job, for instance. It also becomes a problem if you have trouble controlling your spending. When you are struggling to dig out of a debt hole, it's to your benefit to seek debt relief and elimination.
Budgeting and Expense Tracking
The biggest weapon you have against debt is expense tracking and budgeting. Debt is very hard to eliminate if you don't know how much you have left to spend or where your money is going every month. To really get control over your finances, you must write down everything you spend, right down to the pack of gum you grab at the gas station. Keep the receipts you get, or use a notebook or cell phone application to note charges. Once you've been doing this for at least a month, look back at your spending list and create a realistic budget. You'll likely find that funds are leaking from one category, such as food if you eat out a lot. Don't deviate from your budget if possible once you've created it -- often debt happens not because a budget isn't OK, but because a person doesn't stick to it.
Refinancing or Debt Consolidation
You have options for reducing your debt if budgeting and expense tracking alone don't solve your problem. The first thing to do is get some debt counseling. Organizations like the Federal Trade Commission and Department of Housing and Urban Development both offer free counseling, and you can find other local agencies that help through your local chamber of commerce. Next, try refinancing or debt consolidation, which usually reduces your interest rates or the amount you pay each month. If this fails, negotiate with your lenders and creditors for forbearance, lower rates of interest or forgiveness -- settlement -- of some or all of your debt. Debt resolution is a specific type of negotiation in which an attorney negotiates for you and, if necessary, represents you in court. You also can use debt management, a technique in which you pay a debt management company to pay your creditors on your behalf. The last option is to file bankruptcy, which either eliminates some of what you owe or lets you set up a plan for paying your debt with future assets. Settlement and bankruptcy both hurt your credit score, so use these options as a last resort.
How to Pick a Method
To pick a debt relief/elimination method, look at your finances and the willingness of the creditor to negotiate. If you have enough money to pay your debts but can't stay organized, look into debt management. If you need just a little more financial leeway to get a handle on your debt and your credit score is at least 600, go for refinancing or consolidation. If you know you can't pay all of what you owe and legal trouble looms, use negotiation, resolution or settlement. File for bankruptcy only if your lender or creditor refuses to work with you and already has started legal proceedings.
Considerations
If you can't afford legal representation about a debt issue, contact your State Bar Association. Ask for the name of a pro bono (free) lawyer who specializes in debt-related cases. Although most agencies related to debt relief and elimination are legitimate, others are outright scams. You can get most debt services for free, so think twice about hiring a company that charges. Always check that the company you use has a good Better Business Bureau rating.
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