Being deeply in debt can lead to stress, depression, illness and marital problems, especially if you see no way to better your financial situation. Often, debtors are so overwhelmed at the amount of debt they have they will not address the issue, which only makes the problem grow. Lenders typically understand that financial setbacks such as illness or unemployment can make it difficult for consumers to pay their bills and many have programs in place to help a distressed customer.
Budget
You cannot determine the best way to deal with your debt until you determine the amount of money you have monthly that you can put toward your bills. List all of the items that you spend money on each week, not just necessities but frivolous purchases---such as that name-brand latte and vending machine candy bar---as well. List all sources of income to determine how much money you have each week. Remove all frivolous expenses to determine if you can pay your bills using your current income.
Contact Your Lenders
If you cannot pay your bills with your current income, you must contact your lenders as soon as possible to ask for temporary assistance. Lenders can reduce your monthly payment, lower your interest rate and possible defer payments for a few months to enable you to get back on your feet after a situation occurs that prevents you from being able to pay. Lenders are willing to work with you because they do not want you to default on the loan. Talking to your lenders shows them that you want to work out the problem.
Contact a Counseling Service
If you cannot receive enough help from your lenders on your own, there are credit-counseling companies that will work with you to develop a budget and work with your lender to determine a plan that will work for your financial situation. While many companies provide phone and online counseling, according to the Federal Trade Commission, it is better to locate a nonprofit company in your area for in-person counseling. Many universities and government agencies provide low-cost counseling to help you take control of your debts.
Debt Management or Debt Settlement
Counseling services can recommend debt management if you are not able to pay your debts. A debt management company will negotiate payments with lenders and pay the lenders from the monthly payment you send the management company. Typically, these plans can require three to five years to complete and you must make all of your payments to the plan or risk being in default with your lenders. Debt settlement companies collect money from you monthly while negotiating a settlement offer with the lender. The Federal Trade Commission calls debt settlement programs very risky because there is no guarantee that the company will actually pay your debt and your lender can sue you for payment at any time.
Considerations
If nothing else works, bankruptcy can provide debtors with a new beginning for their finances. While bankruptcy has a negative impact on your credit rating, so do nonpayments, defaults and court judgments. In the 12-month period ending in March 2010, there were more than 1.5 million bankruptcy filings in the United States, according to the U.S. bankruptcy court. Most of the filings were by people who were overwhelmed by debt. While bankruptcy is typically a last resort option, it does not carry the stigma it once did and can be an option for you depending on your circumstances.
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