The following is a guest post. To learn more about guest posting on iHeartBudgets, please contact me.
When you have a serious amount of debt to deal with, the important thing to do is to take steps to get it sorted out. The worst thing that you can do is ignore the problem, as your debts will just get larger the longer that you go without making any repayments.
Of course, it can be easier said than done to face debts head on, but there are different ways to go about it.
Do It Yourself
You can try doing it independently, by adopting a strict monthly budget for your household and sticking to it. At the simplest level you need to draw up two columns with outgoings on one and income on the other. Any savings that you can make to the outgoings column will enable you to generate a surplus which can be used to start paying off your debts. Gradually, you can win this war of attrition, although there will inevitably be setbacks along the way.
For some people though, the idea of sorting debt out by themselves is simply too much. If that sounds like you, don’t worry, as there are plenty of debt management companies out there who will be willing to help you – for a fee! But sometimes, it’s a fee well worth paying if it helps you move off the spot and start to reduce your debt.
As a first step, most debt management companies will suggest either a debt management plan or a debt consolidation loan. With a debt management plan, you work out a budget with the company and agree a monthly repayment that you are able to afford. Instead of paying individual creditors, your payment goes to the debt management company which then redistributes it amongst your creditors, with whom it will have a working relationship so may be able to negotiate you an interest rate freeze.
The debt consolidation loan is where you take out a new loan to pay off existing unsecured debts. This usually means lower interest rates and a longer payback period. It can be good for relieving the stress of having many debts, but don’t forget you’ll still need to pay back the whole of the consolidation loan.
If you have more serious problems with debt, a debt management company can offer further solutions and will be able to give you bankruptcy advice as well. The best starting place is to go for a consultation and see what solutions are offered to you as every individual will have their own circumstances to take into account.
iHB Thoughts: Debt can be a scary mountain to tackle, especially if you can’t currently keep up with the payments. I personally have not done thorough research on debt consolidation or loans, but I would advise you to be diligent in doing your own before jumping in. The one advantage I see is that you may be able to get a reprieve from all the calls and harassing creditors when working with these folks, plus they might be able to negotiate lower payoffs and better interest rates for you if you don’t have the energy or wherewithal to do it yourself.
As always, I suggest first getting on a budget, stop borrowing money, and really get a hold of your financial situation. This will enable you to really tackle the debt problem once and for all, and if you do use one of these companies to help you out, you’ll have a plan in place to get it paid off ASAP.