Personal Debt Problem

A personal debt problem can lead to harassing phone calls from creditors, add stress to the entire family, and can have a negative effect on credit history making it difficult to buy a home or get approved for any type of financing. Every person with a personal debt problem should seek a financial plan that will not only help to pay off debts but will keep him or her from repeating the same mistakes that caused the financial difficulties to begin with. Putting together a budget can help an individual see the amount of debt compared to income. Accounting for all expenditures is a good way to see where the money is going and where changes are needed to make the situation better. Bills that include high interest such as credit card accounts should be paid off as quickly as possible. Other options include consumer credit counseling, debt management, a consolidation loan, and negotiating with creditors. "And forgive us our debts, as we forgive our debtors" (Matthew 6:12).

The first step with successful money management is to make a budget. A budget should consist of total income and total expenses. All bills would be listed separately with the total amount due each month. Columns can be broken out by payday or monthly. Most people have certain bills they pay each payday so breaking the columns out by payday usually works best. After all expenses are deducted from total income then this is the amount that can be used to pay down debts and to deposit into a savings account. A budget will not help unless the individual and the family are dedicated to following it. Every person within the family unit has to be accountable for their spending. All expenditures have to be listed in the budget. Going over budget in one area means deducting the overage in another area to make up for the loss. A personal debt problem can be eliminated with the right plan and determination.

Credit card debt is a common issue today among consumers. Banks and lenders make advertisements for charge accounts seem very attractive. The temptation to charge is just too much for some people. Advertisements on television only make matters worse. Then the holidays roll around and all credit cards get maxed out. The best way to handle a personal debt problem when it is from overcharging on credit cards is to pay them off as soon as possible and limit using one or two at the most. Only keep ones with low interest and no annual fees or other types of fees. Transfer balances from high interest ones to low interest ones. Have the bank lower the credit limit and keep it low so the temptation to charge is kept to a minimum. Consumers can be responsible with spending but may find that they are irresponsible when it comes to using credit cards. With this type of personal debt problem a debtor should forego applying for any type of charge account.

Filing bankruptcy can help to eliminate unsecured debt but the effect on one's credit history will be bad for seven to ten years. A personal debt problem often leads consumers to consider filing bankruptcy. This may seem like the only option for those who have had income reduced due to illness or loss of employment. Before a consumer can file bankruptcy he or she must take a course in consumer credit counseling and obtain a certificate to present to the court. Having a bankruptcy on credit will mean a lower credit score and paying higher interest rates for new accounts. This will make it difficult to be approved for any type of loan including buying a house or a car. The lender usually wants the bankruptcy to be a couple of years old and there to be recent credit established that is considered desirable where the consumer has made payments on time before they will approve financing.

Mistakes that can be very costly include forgetting to write a check down in the checkbook, eating out everyday, charging over the credit limit on credit cards, and paying bills late that result in costly late charges. A personal debt problem could be traced to being careless. Making too many careless mistakes and before long there is not enough money to pay all the bills or buy groceries. Once a person gets in a cycle of trying to get caught up things usually get worse before they get better. When the bills that are behind carry weighty late fees and higher interest penalties then the consumer may feel that he or she will never get caught up.

A consumer credit counseling agency or a debt management company can be helpful when a person has lost hope with ever getting caught on paying bills. A counseling agency will be able to give some advice on options. A specialized plan can be worked up to help the debtor get priorities in order through budgeting and planning. Contacting creditors may prove to be very useful for negotiating payoff amounts, interest, and fees. If a consumer chooses to enlist the services of a debt management company they may be very helpful with negotiating with creditors. However, a person should find one that is legitimate and does not charge outrageous fees for their services. A personal debt problem can get better over time. The debtor needs to do some research, find out all options, and then make an informed decision.

Personal Debt Reduction

For many families, personal debt reduction is a major priority as they seek assistance in ridding themselves of overwhelming obligations. Unfortunately, some people are finding themselves on economic thin ice at a time when adjustable rate mortgage payments are skyrocketing and businesses are closing their doors. The best defense against money troubles is to go on the offense. This is not the time to hide under the bed and wait for the nation's economy to heal itself. Instead, the wise individual will face the facts of his or her personal financial situation and take appropriate steps to improve it. Help is as close as the nearest computer for anyone who is determined to get out of debt. Numerous websites provide tips and ideas on saving money. Some even have specialized worksheets that allow consumers to enter information about credit card balances and interest rates. After the information is entered, the program provides a personal debt reduction plan for paying off the credit card companies. Other resources, such as books and magazines, can be a great help when it comes to sound money management techniques. Though participants usually have to pay to attend financial workshops and seminars, the price may be worth the knowledge that is gained and the tools that are given.

The first step in reaching the goal of personal debt reduction is to sit down with the checkbook, a calculator, pay stubs, and monthly statements. First list all income sources and the monthly net amount (less all withholding). People who get paid every two weeks can multiply the net wage by 26 and divide that answer by 12 to get the monthly amount. The next step is to list all regular household expenses, such as mortgage or rent payments, utilities, and insurance premiums. Periodic expenses also need to be listed. These are expenses that come due less frequently than once a month, but that need to be calculated as a monthly expense. For example, homeowner association dues may be $480 annually. The monthly payment would be $480 divided by 12 which is $40. Money should be set aside each month to pay these periodic expenses when they come due. An amount for groceries and other household incidentals should also be included with this list. The total of these regular expenses are deducted from the net income. The remaining amount is available to pay debt obligations. Finally, make a of all debt obligations, such as student loans, car payments, and credit card debts. These items are the primary targets of a personal debt reduction plan. All this information provides a snapshot of how much money is coming into the household and how much is going out. The process may seem cumbersome, but taking the time to create these types of financial worksheets is the best way to understand one's personal financial situation. Wise Solomon encouraged his readers: "So that thou incline thine ear unto wisdom, and apply thine heart to understanding; Yea, if thou criest after knowledge, and liftest up thy voice for understanding; . . . Then shalt thou understand the fear of the LORD, and find the knowledge of God" (Proverbs 2:2-3, 5).

Basically, the goal of personal debt reduction can be accomplished in only two ways: by increasing the income into the household and by decreasing the expenses. Both avenues need to be explored and evaluated to come up with a workable plan. Income may be increased by working overtime hours or getting a second, part-time job. Though this may be exhausting, it's only temporary. Once the debt total has decreased, the second job will no longer be needed. Having a garage sale or selling items on online auction sites are great ways to bring in some extra cash. Perhaps a comic book collection or handmade crafts can be sold. This may be the perfect time to launch an internet store that offers a unique item to a niche target market. Self-employment, even on a part-time basis, also has certain tax advantages. The primary objective in this part of the personal debt reduction plan is to increase income, even if only temporarily, and to use that extra money to pay the debt obligations.

Decreasing expenses is the second avenue for reducing personal obligations. Now is the time to take another careful look at the first list of regular household expenses and to ask some tough questions. Is it necessary to spend almost $50 a month on a gym membership that is never used? Is taking the toll road to work really worth the expense? Are there better deals on car insurance? Each item can be evaluated and perhaps some can be decreased or done away with altogether. The next step, suggested by many financial experts, is to track all spending for one month. That includes the seventy-five cents spent at the employee cafeteria vending machine and the daily specialty coffee bought during the morning commute. What about all those trips to the video store? People are usually very surprised to see how much money slips through their fingers without much notice. Curtailing this type of spending frees up cash for the personal debt reduction plan.

Some people who complete this exercise may need more drastic solutions than cutting back on spending. Though it may be tempting to take out a home equity loan or to withdraw money from retirement accounts, these are not recommended options. Eliminating the debts, not consolidating them, should be the goal of the personal debt reduction plan. Bankruptcy should only be considered as a last resort. Financial resources and guidance are available to anyone willing to seek assistance. Last tip: incline thine ear and knowledge will be found.





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