You need to put your money where it will do the most good when you're behind on bills
Image source: James Morrison via Flickr Creative CommonsIf you're in debt, you're not alone. Whether you know it or not, likely your friends, neighbors and co-workers are also dealing with financial problems, but doing it privately, as you are. Being in overwhelming debt is embarrassing. A recent survey by the National Foundation for Credit Counseling asked people what things they are most embarrassed to be asked. Aside from weight, survey respondents also ranked credit card debt, credit rating and bank balance as the most uncomfortable topics to be asked about. If you can't pay your bills, beyond the embarrassment of being past due is the fear that you are on a downhill slide from which you may never recover. Unfortunately, if you ignore your debts or mismanage how you pay them, this can be true. Today we look at some tips for how to make better money decisions when you're struggling financially.
#1 Pay Secured Loans First
Secured loans, such as your house payment and car note, should be prioritized above credit cards and other unsecured debts. Protecting your home from foreclosure is important, as is keeping your car so you have a way to get to work. Not paying your Kohl's card or your VISA payment are less critical in the grand scheme of things.
#2 Budget, Budget, Budget
We recently wrote a piece that offers specific advice on budgeting. Without a budget, you will struggle because you won't be able to track what you're spending, save for the future and keep yourself on track. The most financially stable people are those that establish a budget and stick to it. You may think it's too late to set a budget if you're deep in debt, but it's not.
#3 Negotiate Unsecured Debt
Ignoring your creditors never helps. If you talk to your credit card company and let them know what's going on, they may work out a negotiated settlement to close your account and take a lower amount or take off accumulated late fees to help you get back on track. And for student loans, you can apply for a lower payment that's based on your income.
#4 Avoid Scams
The last thing you need when you're in debt is to be taken advantage of – and so you need to be on your guard. Advertisements abound that promise to get you debt free and lower all your monthly payments. If it sounds too good to be true, it is. Unscrupulous “debt relief” companies take your money and do little or nothing for you. Don't fall for it.
#5 Consider Bankruptcy
If you are weighed down with a lot of unsecured debts like credit card and medical bills, are being threatened with foreclosure of your home or repossession of your vehicle, filing bankruptcy may be the best course for you. In a Chapter 13, you get extra time to catch up on secured payments like your car and house note and forgiveness of some of your unsecured debts. In a Chapter 7, all of your unsecured debts are discharged and if you are upside down on an unfavorable mortgage or car loan, you can discharge those as well. Either way, you can get a financial fresh start and the peace of mind that goes with it.