Company Logo
Website Banner

Debt Check-up

By: Financial Hotline
Fall 2021 (Vol. 39, No. 3)

How can you tell when you have too much debt? What if bill collectors are not calling yet, but you are having difficulty paying monthly bills? If you find any of the following statements apply to you, you may need to learn more about managing debt before you try to improve your credit.

  • Have you run several credit cards up to the limit?

  • Do you frequently make only the minimum monthly payments on your credit cards?

  • Do you apply for almost any credit card you are offered without checking out the terms?

  • Have you used the cash advance feature from one card to pay the minimum payment on another?

  • Do you use cash advances (or use a credit card) for living expenses such as food, rent, or utilities?

  • Are you unaware of what your total debt is?

  • Are you unaware of how long it would take you to pay off all your current debts (excluding mortgages and cars) at the rate you are paying?

If you answered yes to more than one of these, it’s time to take action. Here are some specific steps to help you out of financial trouble:

1. REVIEW EACH DEBT. Make sure that the debt creditors claim you owe is really what you owe and that the amount is correct. If you dispute a debt, first contact the creditor directly to resolve your questions. If you still have questions about the debt, contact your state or local consumer protection office or, in cases of serious creditor abuse, your state Attorney General.

2. CONTACT YOUR CREDITORS. Let your creditors know that you are having difficulty making your payments. Tell them why you are having trouble--perhaps it is because you recently lost your job or have unexpected medical bills. Try to work out an acceptable payment schedule with your creditors. Most are willing to work with you and will appreciate your honesty and forthrightness.

3. PRIORITIZE PAYING SECURED DEBT. A secured debt means the item you purchased will be taken from you if you don’t pay. Mortgages, leases and cars are all examples of secured debt. Credit cards are unsecured debt. If you can’t pay your rent or your mortgage, contact your landlord or your lender immediately and ask for help. Most automobile financing agreements permit your creditor to repossess your car any time you are in default, with no advance notice. If your car is repossessed you may have to pay the full balance due on the loan, as well as towing and storage costs, to get it back. Do not wait until you are in default. Try to solve the problem with your creditor when you realize you will not be able to meet your payments. It may be better to sell the car yourself and pay off your debt than to incur the added costs of repossession.

4. BUDGET YOUR EXPENSES. Create a spending plan that allows you to reduce your debts. Itemize your necessary expenses (such as housing and healthcare) and optional expenses (such as entertainment and vacation travel). Stick to the plan.

5. TRY TO REDUCE YOUR EXPENSES. Cut out any unnecessary spending such as eating out and purchasing expensive entertainment. Consider taking public transportation or using a car sharing service rather than owning a car. Clip coupons, purchase generic products at the supermarket and avoid impulse purchases. Above all, stop incurring new debt. Leave your credit cards at home. Pay for all purchases in cash or use a debit card instead of a credit card.

6. PAY DOWN DEBTS USING SAVINGS. Withdrawing savings from low-interest accounts to settle high-rate loans or credit card debt usually makes sense.

7. FIND OUT IF YOU ARE ELIGIBLE FOR SOCIAL SERVICES. Government assistance includes unemployment compensation, Temporary Assistance for Needy Families (TANF) formerly Aid to Families with Dependent Children (AFDC), food stamps, now known as Supplemental Nutrition Assistance Program (SNAP), low-income energy assistance, Medicaid, and Social Security (including disability). Other resources may be available from churches and community groups.

8. TRY TO CONSOLIDATE YOUR DEBTS. There are a number of ways to pay off high-interest loans, such as credit cards, by getting a refinancing or consolidation loan, such as a second mortgage. But, tread carefully, be wary of any loan consolidations or other refinancing that actually increase interest owed, or require payments of points or large fees.

9. PREPARE A FINANCIAL PLAN. A financial plan can alleviate financial worries about the future and ensure that you will meet your financial goals whether they relate to retirement, asset acquisition, education, or just vacations.