What to Do if You’re Drowning in Debt
Debt is one of the leading causes of financial stress in America. Most people with debts are juggling multiple debts from different sources, and it can be challenging to keep up with payments. Do you pay your bill, or do you put food on the table? Do you ignore the debt and risk damage to your credit score, or do you make the payment and risk being unable to pay your other bills?
It can be tough to know what to do when you’re drowning in debt, but there are some steps you can take to get back on track.
Evaluate Your Situation
The first step is to sit down and take a close look at your financial situation. Make a list of all your debts, including the lender, balance, interest rate, and minimum payment. Next to each debt, write down the monthly payment you can afford. This will help you prioritize which debts to pay off first.
Analyzing your debts will also help you assess whether you need to make any changes to your spending habits. If your debts are primarily from credit cards, do you need to cut back on your spending? If your debts are from loans, can you afford the monthly payments?
Contact Your Lenders
If you’re struggling to make your monthly debt payments, reach out to your lenders as soon as possible. Explain your financial situation and ask if they can lower your interest rate or waive any late fees. Many lenders are willing to work with customers with financial difficulties, but you need to be proactive and reach out to them.
You can also contact a debt negotiation agency, which will work with your lenders on your behalf. These agencies can sometimes lower your interest rates, or your debts are forgiven entirely, but they typically charge a fee for their services.
Develop a Debt Management Plan
If you cannot lower your interest rates or make changes to your payment schedule, you can develop a debt management plan. This involves making one monthly payment to the debt management company, which will then distribute the funds to your creditors. The debt management company will also work with your creditors to try and get them to lower your interest rates.
A debt management plan can be a good option if you’re struggling to make monthly payments, but it’s important to note that it will still take several years to pay off your debts. Additionally, a debt management plan will show up on your credit report, which could negatively impact your credit score.
Create a Budget
Once you know how much money you have coming in and going out each month, you can create a budget. A budget will help you track your spending and ensure that you can make your debt payments each month. When creating a budget, include a buffer for unexpected expenses. You won’t have to sacrifice your debt payments if something comes up.
You should also consider ways to increase your income. Can you get a raise at work? Can you pick up some extra hours? Can you sell some of your possessions? Any extra money you can bring in each month will help you get out of debt faster. Remember, sticking to your budget could cause you to keep drowning in debt even further.
File For Bankruptcy
If you’re struggling to make debt payments and cannot find a way to repay your debts, you may need to consider filing for bankruptcy. This legal process will allow you to discharge your debts and start fresh. However, it’s important to note that bankruptcy will significantly impact your credit score.
You should understand the different types of bankruptcy before deciding if it’s the right option. A Chapter 7 bankruptcy will allow you to discharge your debts and have a fresh start. However, this type of bankruptcy will also stay on your credit report for ten years.
A Chapter 13 bankruptcy will allow you to keep your assets and repay your debts over time. This type of bankruptcy will stay on your credit report for seven years.
If you’re considering bankruptcy, it’s important to speak with an attorney to understand the process and what it will mean for your financial future.
Generate More Income
Sometimes, you may be too deep in debt that you can hardly make ends meet. If this is the case, you must find ways to generate more income.
One option is to get a part-time job or take on freelance work. This can be difficult if you’re already working full-time, but it’s important to do what you can to bring in more monthly money.
Another option is to rent out a room in your house, or even your entire house, if you’re going to be away for an extended period of time. This can be a great way to generate extra income while also providing someone else with a place to stay.
You can also look into ways to make money from your hobbies or interests. For example, you could start a photography business if you’re a photographer. Or, if you like to bake, you could sell your baked goods at local farmers’ markets or online.
No matter what option you choose, it’s important to ensure that the extra income you bring in is more than enough to cover your monthly debts. Once you’ve done that, you can start working on paying off your debt.
Consider Debt Consolidation
If you have multiple credit card debts from different lenders, you may be able to consolidate your debts into one loan. If you find this out of hand for you it is advisable to gain help with credit card debt from a reliable source. This can make it easier to keep track of your debt and make monthly payments. Additionally, you may get a lower interest rate on a consolidation loan, saving you money in the long run.
However, it’s essential to be careful with debt consolidation. A consolidation loan could put your home or other assets at risk if you cannot make the payments. Additionally, consolidating your debts will likely extend the time it takes to pay off them, which could increase the total interest you pay.
In summary, this article has covered what to do if you’re drowning in debt. You can enroll in a debt management program, consolidate your debts, or even file for bankruptcy. However, it’s important to understand each option’s pros and cons before deciding. Additionally, you may want to try and generate more income to help you make debt payments each month.