Handling the Most Important Debts
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When we spend money on buying items on credit, we end up with things that are either good debts or bad debts. Good debts have value and bad debts don’t! However, there are certain things that are important to us. It is important to have a place to live and it is probably important to have a means of transportation. In a crisis we want to keep our home and possibly our car. These are our most important debts.
You Will Need:
Paper.
A calculator.
Computer Access.
A telephone.
Financial planning software or a spreadsheet.
Step 1
You are experiencing a credit crunch. Calculate how much money you owe and to whom. It is useful to have financial planning software to make this task easier. You can get this cheaply if not freely from this source http://zenhabits.net/2007/05/6-great-free-alternatives-to-quicken-ms-money/.
Step 2
Evaluate your owings. What is important that you owe money on? Certainly your home is important. You want to keep that, so you want to divert money to keep paying the mortgage and stop paying the non-essentials if that is how bad it has become.
Step 3
How much are you paying for your car loan? Can this be reduced? Why pay for a BMW when a small Toyota will do the job just as well. Maybe you can downsize and save some money, which can be used on something more important. Your priorities are
- Food
- Shelter
- Utilities like gas and electricity
- Transport. After that comes debt repayment
Always make sure the important four are paid first.
Step 4
Back to the mortgage. If this has become very burdensome what can you do to generate money to pay for a roof over your head? How can you increase your earnings? Have you got investments you can liquidate? Can the house help pay for itself. Maybe it is big enough for you to take in a lodger. Only you will know the answers to these questions, but you will have to start thinking in a more lateral way. If none of these ideas provide ways to increase cash flow, perhaps you need to downsize your home just like your car.
Step 5
Look to see if you can find another mortgage lender who will offer cheaper terms. Interest rates are low at the moment so consider transferring to an adjustable rate mortgage until things pick up.
Step 6
Let go the unimportant debts. Stop using your credit cards and perhaps default on one or two if you have many. When you stop making payments the Credit Card Company will apply pressure. You will need to withstand the phone calls, but they will stop after a few months and then your debt will be sold on to a collection agency. All this will give you a breather in which to secure payments for those important debts. If something is on credit because it is likely to accrue in value, then deem in important and preserve it. If the item is destined to fall in value, it is a bad debt and you can let it go. Defaulting on payments will get you a bad credit record but look to the worst case scenario. Bankruptcy is designed to get you out of trouble and law cannot hold it against you after a designated period of time.
Tip:
Negotiating with debt collection agencies can often mean you end up paying a lot less than you think.
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