5 Ways to Deal with Overwhelming Debt
It can be easy to fall into debt, and it’s even easier to let that debt run out of control and overwhelm you. Even when you feel like you’re being swallowed up by debt and have no idea what to do, there are ways to deal with and manage your debt wisely. Reviewing your budget, considering credit counseling, looking into debt cancellation, assessing your retirement plan options and filing for bankruptcy are five options for handling your debt.
Reviewing Your Budget
If your debt payments are approaching, don’t run for the hills just yet. You may still be capable of making some lifestyle changes before asking for professional assistance. Consider taking a look at your income and expenses to identify whether changes can be made to return to a sustainable path.
First, ask yourself if there are ways to increase your income. If you’re in great standing at work, it may be time to consider asking for a raise or a bonus that can provide additional cash flow. Another option to think about is reducing the deductions made from your paycheck. Make sure to consult a tax professional and your HR department before taking action.
Next, consider if there are ways to decrease your expenses, like spending less on happy hour and treats picked up on grocery trips. For more set expenses like student loans, there are usually several payment plans to choose from and consolidation options. For debt obligations, inquire about whether the rate can be adjusted to a more reasonable option or look into refinancing your loans. You’ll need to do more independent research before taking these steps.
The downside of reviewing your budget on your own is that you may quickly feel discouraged without support from a professional. If you still feel in over your head, it might be time to look at credit counseling.
Credit counseling can be a good alternative to a debt settlement company. There are many non-profit credit counseling services that can help you develop a debt management plan, provide financial counseling or offer free educational workshops and classes. The United States Trustee Program has a list of credit counseling agencies that is a good starting point for those seeking professional resources. These organizations were approved by the United States Trustee Program to provide counseling that individuals must take before they are eligible to file for bankruptcy protection, but many often provide a wide range of services and resources that can take you beyond managing your current debt and help set you on the right road towards future financial success.
While credit counseling organizations may have your back, you should still be careful when looking for one. Do some research to make sure that the organization is legitimate, their counselors are certified and see if they have any consumer complaints against them. Also note that while these organizations may often be non-profits, there still may be fees attached to their services. The CFPB has a list of questions you should consider during your vetting process.
If you’ve tried credit counseling and feel like you’ve exhausted all other options, you may want to explore two of the more drastic steps on the debt relief spectrum: debt settlement and bankruptcy.
Debt settlement companies can renegotiate or settle your debt by negotiating with creditors and having you pay a settlement, or a lump sum that is less than what you owe. You’ll be asked to put a certain amount of money into an account every month, which will go towards your settlement.
While there is the possibility of not having to pay back your full debt, debt settlement has its risks.
Debt settlement companies often charge heavy fees, so using their services can be expensive. It’s possible for these companies to fail to deliver on their promises, so some of your debt may not get settled. Additionally, some creditors may refuse to work with these companies. Debt settlement could also leave you in even more debt than you were in originally because programs often ask you to stop making payments, possibly leading to late fees.
If you’re considering settling your debt with one of these companies, be careful. When it comes to researching debt settlement, the FTC can be a helpful resource.
Don’t forget that you can also attempt to negotiate with creditors yourself! While some creditors may not be willing to work with a debt settlement company, they may be willing to work something out with you.
Retirement Plan Options
For certain retirement plans, you may able to take out a loan or a financial hardship distribution. Each plan determines whether to offer each option and what the requirements may be. Check your retirement plan document and/or your human resources department to determine what your options are.
Filing for bankruptcy is an extremely serious decision to make and is usually considered a last resort. It can have a huge negative impact on your credit and could prevent you from attaining credit in the near future. Depending on which chapter you declare under, it can take seven to ten years from the filing date for a bankruptcy public record to fall off your credit report. Make sure to consult a qualified financial professional before making the decision to pursue bankruptcy.
One of the advantages of bankruptcy, though, is that it can offer a fresh start. A Chapter 7 bankruptcy could discharge your debt, and Chapter 13 could give you more time to pay back your creditors. Depending on the chapter, filing can also stop calls from collections agencies.
Although bankruptcy can negatively impact your credit for a long time, there are ways to slowly recover from it. And don’t forget, if the bankruptcy doesn’t fall off your credit report when it’s supposed to, you may want to file a dispute with a credit bureau to ensure that your report is accurate and up-to-date.
Having a huge pile of debt can be daunting. Once you’re in over your head, you may feel like it’s easier to ignore your debt instead of confronting it, but that’s not the case. There are more options for dealing with your debt than you probably think – the ones listed here are just a few of them. If you’re considering any of them, be sure to do your research to find out which option is best for you and remember that it is possible to recover from debt over time.