Developing a Budget
The first step toward taking control of your financial
situation is to do 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.
More information is available about developing a budget under budgeting. 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.
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. At that point, your creditors have
given up on you.
Dealing with Debt Collectors: The Fair Debt Collection Practices Act is the federal law that dictates how and when a debt collector may contact you. A debt collector may not call you before 8 a.m., after 9 p.m., or while you're at work if the collector knows that your employer doesn't approve of the calls. Collectors may not harass you, lie, or use unfair practices when they try to collect a debt. And they must honor a written request from you to stop further contact. You can learn more about fair debt collection from the Federal Trade Commission.
Managing Your Auto and Home Loans
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. Unsecured
debts are not tied to any asset, and include most
credit card debt, bills for medical care, signature
loans, and debts for other types of services.
Most automobile financing agreements allow a creditor to repossess your car any time you're in default. No notice is required. 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. 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.
If you and your lender cannot work out a plan, contact a housing counseling agency. Some agencies limit their counseling services to homeowners with FHA mortgages, but many offer free help to any homeowner who's having trouble making mortgage payments. Call the local office of the Department of Housing and Urban Development or the housing authority in your state, city, or county for help in finding a legitimate housing counseling agency near you.
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Financial Difficulties: Introduction Self-Help Credit Counseling Debt Management Plans Debt Consolidation Bankruptcy Debt Negotiation Choosing a Credit Counselor |
