Managing debt is an important part of establishing long-term wealth. Many people face financial crisis at some point in their lives, but having a plan to manage debt is often the difference between those who come out ahead and those who end up in deeper financial trouble. If you find yourself in a troublesome financial situation, many resources are available to help you effectively manage your debt.
Create a Budget
The first step toward managing your debt is to create a budget to get a clear picture of the amount of money you are earning and spending. When creating a budget, list the income you receive from all sources. Also, list all your expenses such as your mortgage, car payments and insurance payments. List the expenses that may seem insignificant because it will give you a clear picture of where your money is going. The goal of creating a budget is to make sure your basic needs are taken care of and cut any unnecessary expenses.
Contact Your Creditors
Many people avoid their creditors during financial difficulties. However, it is important to contact your creditors to inform them of your financial situation. After you explain your financial situation, try to work out a new payment plan with your creditors that allow you to still make payments to your accounts. You want to avoid having your accounts sent to a debt collector because it will have a negative impact on your credit score and you may have to pay additional fees.
Debt Relief Services
Debt relief services have become popular in recent years but not all companies offering these services are legitimate. Debt relief services work with creditors to help debtors formulate a repayment plan. They also help debtors create a budget and offer free educational workshops about finances. Not all debt relief services are free, even those listed as nonprofit organizations. Some companies have hidden fees or hurt consumers' debt situation instead of improving it. It is important to research the legitimacy of a company offering debt relief services before signing up.
Filing for Bankruptcy
Bankruptcy is usually the last resort when dealing with managing your debt. Filing for bankruptcy allows you to receive an order from a judge stating that your debt is dismissed. The United States Bankruptcy Courts state that the purpose of bankruptcy is to give debtors a fresh start. A bankruptcy stays on your credit report for 10 years and makes it difficult to obtain loans or lines of credit. Chapter 7 and Chapter 13 are the two types of personal bankruptcy. Both types get rid of unsecured debt, and stop foreclosures, repossessions and garnishment of wages.
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