Money & Debt Recovery

Recovering from debt may seem like an uphill battle. However, when you know where your money is going and figure out how to control it, you open up options for pulling yourself closer to financial freedom. With the assistance of good credit counselors, even the heaviest of financial burdens may be eliminated.

Budgeting

To recover from debt, you need to start contributing more of your income to debt payments. Simply making minimum payments not only elongates the time you'll spend paying it off, but increases your debt -- sometimes exponentially. To figure out where you may pull money from to pay off your debt, you need to take a good, hard look at how you're spending your money each month. Keep a log of your spending for an entire week, then multiply the total by 4.3 to get a good estimate of your out-of-pocket expenses for the month. Add in your recurring monthly expenses (rent/mortgage, utilities, phone bill, debt payments) and you'll have a total of expenditures to compare with your total income. When you list your expenses, you may be surprised to find areas you didn't know you were spending so much money on. Make reasonable adjustments, then contribute the amount you save to your debt.

Self-Help Debt Recovery

Many people have the ability to dig themselves out of debt by themselves, simply by developing a plan of action. Financial experts are generally divided into two schools of thought when it comes to debt repayment. The first group believe in the debt snowball plan, in which you pay the debt with the smallest balance first, which acts as a mental stimulus to then pay down your next smallest debt until you are eventually debt free. The second group advocates for paying off the debt with the highest interest rate first, since holding onto high interest ends up costing more down the road. In the end, it's up to you to decide what will work best for your own financial situation.

Credit Counseling

For people with complicated or severe debt issues, working with a reputable non-profit credit counseling organization is beneficial. The National Foundation for Credit Counseling website makes finding a legitimate credit counseling organization simple. Once you've found a counselor, she will help you to create a reasonable budget and present you with your options for debt recovery. A credit counselor will also be able to help you get to the root of your financial problems so that you don't end up in dire financial circumstances again. A credit counselor may be able to negotiate with your lenders in ways that you aren't aware of, as a consumer.

Assisted Debt Recovery

Options your credit counselor may present you with include debt consolidation, debt settlement and debt management plans. Debt consolidation is when you take out one large loan to wipe out the balances on your existing debt, so you only have to make one payment per month. This method is particularly helpful for those who have trouble keeping track of payments, but since you are fighting debt with more debt, you may end up in trouble if you aren't fully committed to utilizing the loan properly. In debt settlement, your creditor agrees to a one-time payment, generally of 20 to 75 percent of the existing balance. Creditors only agree to settlements if they see you as a bankruptcy threat. With debt management plans, your credit counselor negotiates lower interest rates or payoff balances with your creditors, then formulates a time frame over which you will pay off the entirety of what you owe.