Personal debt makes your finances difficult to manage, and finding assistance is not necessarily easy. A person with an interest in your debt, such as a creditor, does not usually offer financial advice that is impartial and relevant to your personal circumstances. While not every person's debt level or options is the same, some advice applies to nearly every circumstance.
Make a Budget
A budget, or listing of all of your income and bills for each month, allows you to plan ahead and see where your money actually goes. You'll be able to compare your monthly debt to how much you make per month; you must decrease your expenses if you are not making enough to pay everything. Unnecessary costs, such as eating out at restaurants, can be eliminated to help you pay down credit card debt faster, and your budget helps you see what other money you're currently spend needlessly.
Evaluate Your Debt
Your debt sources should be identified and evaluated. You may be in the habit of using a certain credit card for all of your purchases, but you could have another card with a lower interest rate. Credit card companies change terms; check your accounts to see if your interest rate has been hiked or if an annual fee has be added to your account. Pay off or rarely use those cards with excessive fees to save yourself money. Personal loans usually have a higher interest rate because the loan is not secured by any property. Paying down personal loans should be a priority, as the interest you pay makes the loans harder to pay off.
Be Careful with Debt Consolidation
Both traditional debt consolidation, when you move all of your debt to one creditor, and nonprofit consolidation, through a credit counseling plan, have benefits and pitfalls. Traditional debt consolidation can work if you move the debt to a source that will not raise the interest rate, such as a second home mortgage, but you must not incur more debt afterward. Credit counseling plans are beneficial if your counselor slashes your debt and you are given an affordable plan payment. You must be able to make the monthly plan payment on time.
Bankruptcy is Sometimes Necessary
Bankruptcy, a federal filing that allows you to wipe out your debts entirely or receive a court-ordered repayment plan, is necessary in some cases. Your debt may be too high to pay off over any reasonable length of time when you consider your actual income. Creditors can make your situation worse if your wages are garnished or your bank accounts seized. Bankruptcy affects all aspects of your finances and should be investigated thoroughly before you file, but the federal protection you receive from creditors may be vital.
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