Handling Your Debt

If you are struggling with that four letter word DEBT don't, there are things you can do. The one thing you don't want to do is nothing.

A Few Problems With Debt

The first headache you'll face with debt is you have to pay it back. This creates both emotional and financial stress. 

This in turn paralyzing your ability to make good decisions about what to do next. The common solutions are Debt Relief or Debt Settlement. Take a few things into consideration before you make your final choice:

1. Amount owed.

2. Income (future earnings)

3. Your age

4. Your current credit rating

Age is a big factor when considering what to do with terminal debt. Who wants to spend their later years always worrying about debt? It's never a first choice but bankruptcy is an option that must be considered for a few reasons.

The biggest one is protection. For the average person this is the only legal way to be protected by the law. As the laws have changed some in 2005, you still can use chapter 13 or 7 to your advantage. 

Younger folks need to weigh this more carefully, your purchasing years are ahead of you, FICO scores are important. Some form of debt settlement should be looked at carefully. Debt relief or debt settlement will affect your credit score but not as bad as bankruptcy.

There is a element of debt less talked about that effects you, your family, job and happiness, it's Debt Stress.

If your in a position where debt is consuming your life, it's probably wearing on your health too. As this situation lingers on the pressure increases more calls from collectors, letters and even threats.

Take The First Step

One way to divert this problem is to call them first. Lenders are use to people ruining from them, they react differently if you call them. You might be surprised most are very nice and appreciate it if you contact them first.

The stress of debt can be debilitating and if your health fails well, this you don't need.

During these times your biggest enemy can be you. The time spent worrying should be used to learn more about debt options and solutions. I know it's easier said than done, but please think about how destructive anxiety can be and it really offers nothing constructive.

So, don't be to hard on YOU.There are a lot of people in the same boat, some famous who start all over again.

When you look back in a few years from now it will be just another bump in the road and hopefully a bump you will not face again.

As money gets tighter things change, lenders don't lend as much and the whole game changes.

As we discussed bankruptcy is the only real way to get immediate protection under the law. Forms of settlement are outside the law and can be just as effective if negotiated right.

The key issues for settlement is:

1. Can you meet the future payments?
2. Are you saving enough in this process to make it feasible?
3. How badly will your credit be damaged?
4. Is the settlement company helping you reputable?

People think that just because they enter into a settlement agreement that their safe, it's not so.

The debtor still has the right to contact you. They don't always play by the rules, they have been know to still try and collect even after a settlement has been reached. If your dealing with a reputable company chances are they will play fair, but a settlement is not the same protection as a bankruptcy.

The key here is get some basic knowledge for yourself so you know what to ask. You will be able to spot a bad situation right away.

Another option to bankruptcy or debt relief is called Debt Rollover.

This means your taking short term debt and turning it into long term Debt. One of the popular ways to do this was to use the equity in your house. This has become less doable as house prices have declined and lenders have become tighter in their practices.

Rollover Precautions:

1. Not locking in Rates and Terms.

2. Reverting back to old habits. (running up credit cards after being paid off)

We have a good example of this in our own backyard. A state has short term debt, then sells a 20 years bond, turning a short term debt into a long one. The problem we see now is they accumulated more short term debt. This is not what we want to do in our situations.

Shifting Debt

Shifting debt from one place to another is a option, the key is discipline. Don't repeat the debt habits that got you there in the first place. Some banks, depending on your situation, will give you unsecured rollover credit to do this transaction. You have to be in pretty good shape for them to help with this, but it can be done.

There are some cases where using cash from an insurance policy or even a loan on a 401k plan makes sense. In these cases a talk with a professional tax person is advisable.

Conclusion

You don't want debt to steal your health, you don't want to make bad choices, but you do want to learn from this situation. Take the time to find out more about how debt works, do this at the debt hub. It's time well spent.