Dealing with Debt? Five Ways to Resolve Your Debt Issue
Being in debt is stressful, and the road to getting rid of it can seem overwhelming, especially if you incurred the debt some time ago and can’t see how you would be able to pay it off. It’s easy to panic if your creditors send you dunning notices, and you fear losing the roof over your head.
However, with some careful planning and a strategic approach, it is possible to leave debt behind you, achieve financial stability, and look ahead to a better future. Read on for five steps you can take to get out of debt.
1. Set a Budget
A solid, realistic budget is the first step you can take toward financial freedom. List your monthly income vs. your monthly expenditures – you want to determine precisely how much you make and spend each month. This chart should include all fixed expenses, such as rent, mortgage, insurance premiums, and car payments, as well as varying expenses such as groceries, clothes, and your electricity bill. It’s important to be strictly honest at this stage and not gloss over expenditures you often make.
Your goal is to figure out the minimum monthly amount you need to meet necessities such as housing, healthcare, and food. Then figure out which nonessentials you can trim down to channel that expenditure towards paying your debt instead.
2. Craft a Debt Repayment Plan
Once you have a budget set, you should know how much you can spare to apply to your debt each month. Make a list of all your debts, including their interest rates and current standing. Start by calculating all your minimum payments, as paying the minimum each month is vital.
Whatever remains of your excess funds should be applied to any accounts that aren’t in good standing. You may be able to negotiate with your creditors to reduce your balance—but we’ll get to that in a moment. After past-due balances, set your sights on the highest interest accounts.
Either transfer that debt to a lower interest option, such as a credit card with a low intro-APR, or pay as much as possible on it each month while making the minimum payments on other accounts.
3. Work With Your Creditors
If you know you are having trouble paying off debt, do not attempt to evade your creditors. Be upfront and honest as you try to work out a payment plan you can manage.
If you can’t meet your mortgage payments, communicate with your lender, and try to work out a plan. This plan may temporarily reduce or suspend payments or settle for a long repayment period with lower monthly payments. Before committing to any agreement, get a clear picture of any additional fees you might have to pay and how this will affect your total debt amount.
You might have secured debt, such as a mortgage or a car loan, that is tied to a specific asset. If you fail to make payments, the lender can foreclose on your house or repossess your car. It may be better to sell your car yourself and pay off the debt to avoid costly penalties and a lower credit score.
4. Pick Up a Side Gig
If your current income isn’t cutting it to cut down your debt—your next option is to increase your income. We’re living in a gig economy. Now more than ever before, you can find side jobs to work in your spare time, from delivering meals to writing web content, and everything in between.
The most significant advantage of a side gig is it’s temporary. You only have to stick with it until you settle your debt. You may also be able to classify your efforts as a business and claim specific business-related discounts on your taxes, such as a home office deduction. That could lower your tax liability and even lead to a refund—providing even more cash to apply to your debt.
5. The Final Option: Bankruptcy
If all else fails, you may have to look into personal bankruptcy. It’s a daunting prospect, but it can offer you a fresh start.
If you file for bankruptcy and follow the legal requirements, you may receive a court order exempting you from paying certain debts. However, bankruptcy will usually remain on your credit report for up to a decade. It may prevent you from buying a home, getting credit or life insurance, or even finding employment.
Personal bankruptcy includes two main types: Chapter 7 and Chapter 13. Chapter 13 may enable you to retain property such as a car or a mortgaged home, provided that you have a steady income and a court-approved repayment plan.
Chapter 7, also called straight bankruptcy, will usually liquidate all assets but exempt ones. Generally, personal bankruptcy will not absolve you from paying alimony, child support, fines, or taxes.
Before you file for bankruptcy, you will have to contact a government-approved organization for credit counseling.
Struggling with Debt? We Can Help
Are you struggling with debt? Do you need a bankruptcy attorney in Katy, Texas? Ciment Law Firm, PLLC, can help you resolve your debts, protect your rights, and rebuild your credit. Call (281) 937-3949 to reach us at our office or contact us through our website for a free consultation.
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