Knee Deep in Debt

Having trouble paying your bills? Getting final notices from creditors? Are your accounts being turned over to debt collectors? Are you worried about losing your home or your car?

Knee Deep in Debt

Source: http://public.findlaw.com

This article is based upon a FindLaw American article by the same name but has been amended to meet South African conditions.

Having trouble paying your bills? Getting final notices from creditors? Are your accounts being turned over to debt collectors? Are you worried about losing your home or your car?

You’re not alone. Many people face a financial crisis some time in their lives. Whether the crisis is caused by personal or family illness, the loss of a job, or overspending, it can seem overwhelming. But often, it can be overcome. Your financial situation doesn’t have to go from bad to worse.

If you or someone you know is in financial hot water, consider these options: realistic budgeting, debt consolidation, or insolvency. Debt negotiation is yet another option. How do you know which will work best for you? It depends on your level of debt, your level of discipline, and your prospects for the future.

Self-Help

Developing a Budget

The first step toward taking control of your financial situation is to prepare a realistic assessment of how much money you take in and how much money you spend. Start by listing your income from all sources. Then, list your “fixed” expenses — those that are the same each month — like mortgage payments or rent, car payments, and insurance premiums. Next, list the expenses that vary — like entertainment, recreation, and clothing. Writing down all your expenses, even those that seem insignificant, is a helpful way to track your spending patterns, identify necessary expenses, and prioritize the rest. The goal is to make sure you can make ends meet on the basics: housing, food, health care, insurance, and education.

Your public library and bookstores have information about budgeting and money management techniques. In addition, computer software programs can be useful tools for developing and maintaining a budget, balancing your checkbook, and creating plans to save money and pay down your debt.

See How to make a budget and stick to it.

Use our free sample budget to see where you can cut back on unnecessary expenses.

Contacting Your Creditors

Contact your creditors immediately if you’re having trouble making ends meet. Tell them why it’s difficult for you, and try to work out a modified payment plan that reduces your payments to a more manageable level. Don’t wait until your accounts have been turned over to a debt collector or attorney. At that point, your creditors have given up on you.

Managing Your Car and Home Loans

Your debts can be unsecured or secured. Secured debts are usually tied to an asset, like your car for a car loan, or your house for a mortgage. If you stop making payments, lenders can repossess your car or foreclose on your house. Unsecured debts are not tied to any asset, and include most credit card debt, bills for medical care and debts for other types of services.

Most car financing agreements allow a creditor to repossess your car any time you’re in default. If your car is repossessed, you may have to pay the balance due on the loan, as well as towing and storage costs, to get it back. If you can’t do this, the creditor may sell the car for less than the settlement figure and you may end up both losing the car and, to make matters worse, having to pay a lump sum without enjoying the use of the car. If you see default approaching, you may be better off selling the car yourself and paying off the debt: You’ll avoid the added costs of repossession and a negative entry on your credit report.

If you fall behind on your mortgage, contact your lender immediately to avoid foreclosure. Most lenders are willing to work with you if they believe you’re acting in good faith and the situation is temporary. Some lenders may reduce or suspend your payments for a short time. When you resume regular payments, though, you may have to pay an additional amount toward the past due total. Other lenders may agree to change the terms of the mortgage by extending the repayment period to reduce the monthly debt. Ask whether additional fees would be assessed for these changes, and calculate how much they total in the long term.

Debt Consolidation

You may be able to lower your cost of credit by consolidating your debt through a second mortgage. Remember that this loans requires you to put up your home as collateral. If you can’t make the payments — or if your payments are late — you could lose your home.

Otherwise, find a friend or family member willing to lend you enough to pay all your creditors (either in full or an agreed reduced amount).

Insolvency

Personal insolvency generally is considered the debt management option of last resort because the results are long-lasting and far-reaching. A bankruptcy stays on your credit report for 10 years, and can make it difficult to obtain credit, buy a home, get life insurance, or sometimes get a job. Still, it is a legal procedure that offers a fresh start for people who can’t satisfy their debts. People who follow the insolvency route receive a court order that says they don’t have to repay any of their debts. Go herefor more detail.

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