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How To Get Out of Bad Credit Situation

Your financial health is your responsibility. Lines of credit and credit cards need to be used responsibly. Sometimes, how ever, even the best financial manager can get into trouble. If you find yourself in the place where you can’t make payments on your debts there are good ways and bad ways of dealing with the problem. Make sure you stay in touch with your creditors don’t ignore them hoping they will go away, because they won’t. If you ignore them things just get worse and cost you more money in the long run.

Sit down with a friend or spouse and figure out a reasonable budget. For awhile you might have to cut back on some luxuries and entertainment expenses. Try to make the minimum payment on all your cards while you are working this out. You might even have to look for more work. A weekend side job whose money is used exclusively for paying back the debt is a great way to go.

If you are experiencing financial difficulty and cannot make payments on your bills, ignoring the problem by leaving mail laying around unopened and letting the answering machine screen incoming calls will only make your situation worse. Putting off addressing financial issues costs you more money in interest and finance charges while robbing you of your peace of mind.

Work out a realistic budget. Do what you can to increase your income and try to cut down on less important expenditure. Make sure you are getting all welfare benefits that you are entitled to.

Stay Ahead of the game

Pay attention to what you are spending and where your money is going. Don’t buy consumables (like gas, food, and clothing) on credit unless you can pay your bill in full every month. Work out that budget so you know exactly what you have to spend and how you spend it. This is the first step in good financial management.

Are You Sinking?

Anything on this list could mean you are headed toward financial disaster so pay attention to these problems.

  • Are you living on payday loans?
  • Are you close or over the limit on some or all of your cards?
  • Are you paying bills late, making minimum payments or not paying bills at all?
  • Do you have too much month left at the end of the money? (read this one twice)

Warning Signs of a Financial Problem

  • You are using more and more of your income to pay your debts.
  • You are close to, or surpass, your credit card limit.
  • You must borrow to make payments on existing loans.
  • You only pay the minimum amount on your bill.
  • Lack of money is forcing you to pay bills late or postpone doctor's visits.
  • You must work overtime, or take a second job, to cover basic living expenses.


Why is this happening?


Some difficult questions to ask yourself that will help you figure out the problem.

How much are you worth? This means adding up what you own outright (things already fully paid for), and how much you make per month from jobs, businesses, alimony or child support.

What are your expenses?

Sort by category;

  1. Rent or mortgage;
  2. utilities-phone, electric, gas TV;
  3. Groceries
  4. Laundry and dry cleaning;
  5. Revolving credit, credit cards, payday loans;
  6. Car payments;
  7. Entertainment, eating out, movies, concerts.
  8. Anything else you might buy or spend money on.

When you have totaled these up you have your monthly overhead (or costs).

Subtract your expenses from your earnings this number is how much more money you need per month if you didn’t change anything else.

Now that’s over and the news is not as bad or worse than you thought it’s time to go on a spending diet. Oh ouch, I don’t want to, but this is the easiest way to start digging yourself out of debt. Some of these tricks won’t even hurt, but some might pinch a little.

Call the creditors:

Don’t hide from them, call and set up payment arrangements, they will usually work with you to some degree. If not keep, paying them anyway even if you can’t send a minimum payment send them something every month.

Contact your creditor

Contact your creditors to let them know you're having difficulty making your payments. Ideally, this should be done before a payment is late or missed. Tell them why you're having trouble -- perhaps it's because you or a spouse recently lost a job or have unexpected medical bills. Try to work out an acceptable payment schedule with your creditors. Most are willing to work with you and will appreciate your honesty and forthrightness. Many have "hardship programs" which provide for adjustment of payments for a period of time.

Develop a Debt Payment Plan

If you find yourself with more bills than your monthly income can cover, set up a debt payment plan. Completing this plan will take patience. You will have to stick with it until all your debts are paid. A debt payment plan will work if you really want to get out of debt. You need to start getting out of debt right now. Paying a little back is better than doing nothing or just worrying about the problem. Paying back a small amount will give you a sense of control. It will start you on your way to solving your financial problems.

To set up a debt payment plan, follow these steps:

  • 1. Find out who you owe and how much you owe.
  • Decide how much you can pay back and when you can pay it back.
  • Set up a plan for paying back your debts.
  • Discuss your plan with your creditors.
  • Control your spending by sticking with your debt payment plan until debts are paid.
  • Occasionally, look over your plan to see if you are keeping up with your debts and your daily living expenses. If there is a change in your income, you need to raise or lower your monthly payments accordingly

You have to admit that you have financial problems and really want to solve those problems. Getting out of financial trouble is not easy. You have to make up your mind that you will pay your debts within a specified length of time. You have to be willing to discipline yourself to pay back the money you borrowed.

Stop spending

Now that you have worked out a plan, destroy all your credit cards, do not take out any more loans except in extreme emergencies, and contact each creditor and explain your plan. Go visit each creditor. If you cannot visit your creditor, call or write a letter. Do not send the letter unless you intend to follow through with the repayment plan. Remember, creditors would rather receive a small payment than nothing at all. They also prefer to have the money than the items you purchased.

Dealing with Debt Collecotors

The Fair Debt Collection Practices Law prohibits a debt collector from showing what you owe to anyone but your attorney, harassing or threatening you, using false statements, giving false information about you to anyone, and misrepresenting the legal status of your debts. Remember that under other federal laws to collect debts, creditors cannot seize most government assistance and can only garnish a portion of wages to collect debts.

Budgeting

If you spend more than you make, you should look at making some changes. Create a spending plan that allows you to reduce your debts. Itemize your necessary expenses (such as housing and health care) and optional expenses (such as entertainment and vacation travel). Start a savings plan so that funds are available for unforeseen but essential expenditures. Stick to the plan.


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