By Suzanne Cramer
In my last post, Financial Tips For Getting Out Of Debt I discussed some easy ways to keep yourself out of debt; but what if it is to late and you are already there? Many of us jump right to the conclusion that bankruptcy is the only way out; the reality is this should be the last option you consider.
Debt happens to the best of us; an unexpected medical emergency for you or your child, a job loss, or maybe just keeping up with the day to day expenses can get you there fast and for a single person it can be tough to get out of, one income equals less money to pay down debt.
Before you go beating yourself up or begin to panic know that you CAN do this; take a deep breath, look at all the positives in your life and begin to asses your entire financial picture.
First of all, it’s important to admit what’s happening. Many of us have trouble acknowledging that we are in debt, especially if we’ve never struggled with money before. There’s shame and stigma attached to money troubles—but there shouldn’t be. Often, debt is the result of outside forces that are unpredictable.
Even now you may be telling yourself that you are reading this for someone else, you don’t have a problem. Just as an alcoholic needs to admit they have a problem, money troubles and mounting debt require admitting you need to address the situation. This is the first and a very important step in your journey to debt freedom.
Develop A Plan
Once you’ve admitted you’re struggling with debt, you can start thinking clearly about a plan to get out of it. Depending on the severity of your debt you may have several options available to you. If you can keep up with debt payments consider paying more than the minimums and stop using your credit cards to get the debt you have paid down.
If you’re having trouble making payments on time, getting calls from creditors, or are considering bankruptcy, you may need bigger guns in your fight against debt. In that case, you may want to consider a Debt Management Plan or Debt Settlement Plan with a provider like CareOne.
Debt Management Plans (DMP)
DMPs help you pay off your debt in consolidated monthly payments. After three on-time and consecutive payments are made, creditors usually agree to lower your interest charges and reduce the amount of payments. A DMP will stop collection calls and lessen the overall amount you’ll have to repay (although you’ll still be responsible for repaying the principle). You’ll also avoid late fees. You’ll need to make consistent monthly payments though, and can’t take on new debt while you’re on the program.
Debt Settlement Plans (DSP)
DSPs are an alternative to declaring bankruptcy. On this type of plan, you’ll make monthly deposits into an FDIC-insured account, not to your creditors. Meanwhile, your provider will negotiate with creditors for a pay-off amount you can afford. When an amount is reached, it will be paid from your settlement account. This method can drastically reduce your total amount owed. Payment arrangements are more flexible and, of course, you’re avoiding bankruptcy. But your credit profile will be affected and you can be taxed on the part of your debt you don’t pay back.
Know you are NOT alone
Like I said before debt can happen to the best of us and there is nothing to be ashamed of. Many people are struggling with debt in today’s economy for various reasons. Sometimes it helps to connect with others that have been in your shoes. Even if you don’t need a debt relief plan you can join CareOne’s online community and benefit from connecting with others just like you.
Suzanne Cramer is a certified credit counselor and a Social Media Specialist for CareOne Debt Relief Services. Suzanne writes for Divorce, Debt and Finances and Major Life Challenges. Follow Suzanneon Twitter @where she shares her insights as a single-divorced mom with tips and tricks to keep your finances in check.