Ravi Chandran
If, like thousands of others, you are having financial trouble and have difficulties paying your debts, it is important to take action. Doing nothing can lead to much larger problems in the future – bigger debts, the loss of assets, and a bad credit record.
By: Hitesh Khan/
If you’re in financial trouble, focus on improving your relationships with creditors, reducing your debts, and better managing your money. Here’s how to get a fresh start.
How can you tell when you have too much debt? Answer the following:
- Have you run several credit cards up to the limit?
- Do you frequently make only the minimum monthly payments on your credit cards?
- Do you apply for almost any credit card you are offered, even without checking out the terms?
- Have you used the cash advance feature from one card to pay the minimum payment on another?
- Do you use cash advances (or use a credit card) for living expenses such as food, rent, or utilities?
- Are you unaware of what your total debt is?
- Are you unaware of how long it would take you to pay off all your current debts (excluding mortgages and cars) at the rate you are paying?
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If you find any of these statements apply to you, you may be in some financial trouble.
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Here are some specific steps you can take if you are in financial trouble:
1. Review each debt. Make sure that the debt creditors claim you owe is really what you owe and that the amount is correct. If you dispute a debt, first contact the creditor directly to resolve your questions. If you still have questions about the debt, seek the help of financial counsellors.
2. Contact your creditors. Let your creditors know that you are having difficulty making your payments. Tell them why you are having trouble. Perhaps it is because you recently lost your 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.
3. Budget your expenses. Create a spending plan that allows you to reduce your debts. Itemise your necessary expenses (such as housing and health care) and optional expenses (such as entertainment and vacation travel). Stick to the plan.
4. Try to reduce your expenses. Cut out any unnecessary spending such as eating out and purchasing expensive entertainment. Consider taking public transportation or using a car sharing service rather than owning a car. Clip coupons, purchase generic products at the supermarket and avoid impulse purchases. Above all, stop incurring new debt. Leave your credit cards at home. Pay for all purchases in cash or use a debit card instead of a credit card.
5. Pay down debts using savings. Withdrawing savings from low-interest accounts to settle high-rate loans or credit card debt usually makes sense.
6. Try to consolidate your debts. There are a number of ways to pay off high-interest loans by getting a refinancing or consolidation loan, such as a second mortgage. Just be wary of any loan consolidations or other refinancing that actually increase interest owed, or require payments of points or large fees. Also, be aware that second mortgages put your home at risk of repossession. Do not secure such a loan until you are certain you are able to meet the payment requirements.
7. Prepare a financial plan. A financial plan can alleviate financial trouble worries about the future and ensure that you will meet your financial goals.
The best advise anyone can get when faced with financial trouble is to cope with cash flow without borrowing. Before you are late on a rent, mortgage, or utility payment, speak with the creditor. For non-interest bills, such as utility or telephone bills, ask about making payment arrangements. Ask to delay payment until your pay arrives or set up a repayment schedule that stretches out payments.
Those in financial trouble may ask your friends or family to lend you money.
Remember that a written agreement to repay the loan can help avoid family strife later. Licensed money lenders who charge no more than 4% interest per month on the amount you have borrowed, are another source for those under financial stress.
But before you approach a licensed money lender, consider other alternatives, such as the various financial assistance schemes offered by various Government agencies. As you are legally obliged to fulfil any loan contract you enter into with a licensed moneylender, consider whether you are able to abide by the contractual terms, bearing in mind your income and financial obligations.
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Borrow only what you need and are able to repay. Be mindful that if you are unable to meet the contractual terms, the late payment fees and interest payment will be a financial strain not just on yourself but also on your family. The law requires moneylenders to explain the terms of a loan to you in a language you understand and to provide you with a copy of the loan contract. Make sure you fully understand the terms of the contract, in particular, the repayment schedule, the interest rate charged and the fees applicable.
Regardless of how much of a financial trouble you are in, you should always shop around different moneylenders for the most favourable terms. You should not rush into and commit yourself to a loan until you are satisfied with the terms and conditions.
When you are in financial trouble, do not lose hope. You can regain financial health if you act responsibly. The options presented here can put you on the road to financial recovery, and professional financial guidance will get you the rest of the way there.
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