If you have debt, understand that you are not alone. It’s ok to use credit to make purchases — such as a home, furniture, or even a college education — but remember, there is a cost associated with that in the form of interest.
Interest rates and repayment terms will vary, but debt balances can quickly start to get out of hand without good budgeting and spending decisions. How do you know when your debt is too much and you’re headed for trouble?
10 Warning Signs of Too Much Debt
1. No savings.
2. You only make the minimum payment on your credit cards each month.
3. You continue to make more purchases on your credit cards while trying to pay it off.
4. You have at least one credit card that is near, at, or over the credit limit.
5. You are occasionally late in making payments on bills, credit cards, or other expenses.
6. You don’t even know how much total debt you actually have.
7. You use cash advances from your credit cards to pay other bills.
8. You bounce checks or overdraw your checking accounts.
9. You’ve been denied credit.
10.You lie to friends or family about your spending and debt.
You realize you have too much debt, now what?
If debt starts to become overwhelming, there are ways to deal with those accounts and start to regain some financial stability. The option you choose is up to you — but make sure you fully understand how each option works before making any final decisions. Be sure to consider how you handle your creditors. It’s important to stay in close contact with them, explain your situation, but don’t commit to something that is not feasible.
Handling It On Your Own
• Rework the budget – you may have to increase income, decrease expenses, or try a combination of both in order to improve your monthly cash flow situation. Determine what are the “needs” in your budget, versus the “wants”.
• Liquidate Assets – are there items you could sell that could help you pay down debt? Are there any savings or investment accounts that may provide some needed funds? Remember — you should only consider using funds in a 401K or IRA as an absolute last resort for dealing with a financial crisis. That money is designated for retirement, and any withdrawals will usually come with penalties and taxes.
• Hardship Program with Creditors – many creditors have internal programs that may provide some temporary relief with the interest rate, monthly minimum payment, and/or the due dates.
• Refinance or consolidate existing loans – you may have loans (auto, home, personal) with a high-interest rate. Depending on your credit, you may be able to refinance those loans, reduce your monthly payment, and save some money. Sometimes it makes sense to consolidate various outstanding loans into one loan if you are eligible for a lower interest rate that will save you money with lower payments.
Need Some Outside Help?
If you feel like you are just in too deep, or don’t feel comfortable navigating this territory on your own, there is trustworthy help available to you.
Debt Management Programs
A Debt Management Program (DMP) sets up a payment schedule for you to repay your debts over a specified period — generally 3-5 years. By voluntary agreement, you deposit funds with a credit counseling agency, like GreenPath, and they send those funds directly to your creditors.
You may also receive a reduction or waiver in interest rates and late fees, which will greatly help accelerate the payoff of your balances. Credit counselors also provide assistance with helping establish a workable budget, as well as other financial education.
Debt settlement is an agreement between a debtor and a creditor to pay off any remaining debt, at a reduced amount. Individuals can negotiate directly with their creditors, or utilize the fee-based services of a debt settlement company. Know the possible consequences to this option before you choose this path. There may be some negative impact to the credit, as well as potential tax implications for any forgiven debt.
Be Positive and Get Started
Sometimes, we know deep down that we have a debt problem, but it is easier to deny the problem than to address it. It can be painful and require hard work, but the sooner you realize that you are in over your head, you can get help and begin to make positive changes. Genisys Credit Union offers the services of GreenPath Financial Wellness free to its members.
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Sources: Greenpath Financial Wellness