3 Step Approach to Handling Your Debt Crisis

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 controlled. If your financial situation has spiraled out of control, there are things you can do to get your life back on track.

Contacting Your Creditors and Lenders: 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. By that time, your creditors have given up on you.

Develop a Budget - Do a realistic assessment of how much money you take in and how much money you spend. Writing down all your expenses is a great way to track your spending patterns and identify necessary expenses.

Start by listing your income from all sources. Then, list your “fixed” expenses such as mortgage payments or rent, car payments, and insurance premiums. Next, list the expenses that vary — like entertainment, recreation, and clothing. Finally, allocate a certain percent of your budget toward your fixed expenses and your discretionary spending.

Managing Your Secured Debts: Your debts can be unsecured or secured. Secured debts usually are 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.

Most auto financing agreements allow creditors to repossess without notice car if you are in default. If your car is repossessed, you are still responsible to pay the remaining balance due on the loan, late fees, and towing/storage costs. If you are unable to do this, the creditor may auction the car.

To prevent this situation from happening, sell your car and pay off your debt if you see yourself defaulting on your auto loan.

If you fall behind on your home mortgage, contact your lender immediately to avoid foreclosure. If you are acting in good faith, many banks will work with you.

Many times, lenders may reduce or suspend your payments for a short time. 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.

Even if you and your lender cannot work out an arrangement, there is still hope. Contact a housing counseling agency that is willing help to any homeowner who’s having trouble making mortgage payments.

Contact the Department of Housing and Urban Development to find a legitimate housing counseling agency near you