Tips to Avoid Bankruptcy

Almost every day, it seems that there is some bad news about the rising cost of living. This is meaning increasing numbers of people are applying for bankruptcy. The prices of everyday essentials are going up at a time when most people’s incomes aren’t keeping up with the rising inflation.

Fuel bills, food and the cost of insurance– all essentials in our lives – are going up, meaning the money that’s left to pay for other things is becoming less and less. Finances are tight for most, even for people that do not need a debt management plan or debt consolidation. If you are facing bankruptcy then it is an even harder time to have money worries following the recession.

If you are already making payments towards a debt settlement plan or debt consolidation then it is important to keep these payments up to date. Anyone seeking to avoid entering into a debt management plan, debt consolidation or bankruptcy might be able to do so by tightening their expenditure and using the extra money to pay off debts.

Some good news is that there are some easy ways for people to save money and potentially prevent actions such as bankruptcy being taken. The first thing that can be done is look at your utility bills and insurance policies. Use a couple of price comparison websites to double check that you are getting the best deals available and if you are not then switch providers. Although, you need to check your contracts to make sure you can leave without incurring any financial penalties. Check your mobile phone bill and usage to see if you can move to a different network or get a cheaper contract on your existing one. If you’re not using all your minutes and texts then you are just wasting money. It’s also worth working out if a pay-as-you go phone would be more economical to use as some of the pay as you go plans these days offer free texts if you top up so much a month.

Food is another basic essential that none of us can do without. Having said this there are ways to cut food bills which saves money. It is estimated that the average family of four people wastes $680 worth of food every year, the equivalent of $56 a month. If you plan meals, preparing the meals from scratch and making sure you cook the right amount it’s easy to begin to reduce expenditure on food. Switching to cheaper brands at the supermarkets can also help shrink the bill. Giving up dining out and takeaways is yet another simple way to ensure you have more money left towards the end of the month.

If you need to save even more money to help with your debt management payments or debt consolidation then cutting out or cutting down alcohol and cigarettes will make a big difference to your cash flow as these are luxury items that have a high price at the till. This will also have a positive impact on your health.

Small things can really add up and help you tackle your debts before they build up and become a more serious problem which could lead to possible debt consolidation or worse filing for bankruptcy.

If all these ideas seem a bit drastic then think about the ultimate goal of becoming debt-free and the relief that you will feel when you can finally pay off your debt management plan or debt consolidation, which will mean that you avoid bankruptcy.


Best Time for DIY Debt Settlement is Early

When you begin to realize your debts are mounting and you are about to lose control of your finances, it is in your best interest to begin the process of debt settlement on your own right away. Debt settlement sounds like a complicated process average consumers cannot handle on their own. Actually, it is this myth that often perpetuates the vicious cycle of debt.

There are many reasons why your financial status will fall into disrepair. Job loss, expensive medical treatments, investments gone wrong, overspending, and even fraud can throw your financial affairs into a spin, leaving you with creditor calls demanding money and dwindling funds in your savings accounts. Making a move as soon as you realize where your financial affairs are headed will serve you well.

How to Start the DIY Settlement Process

Settling debts on your own may sound ominous and overwhelming but that is simply not the case. All consumers have the power to settle their debts but many fear the process.

To start out you should make a list of your financial outlook. Use your existing budget or create one if you haven’t used a budget before. (Incidentally, not having a budget is the trigger that leads many into the downfall of debt.) Find out exactly how much you owe to each creditor and then figure out how much of your income or savings goes out to monthly financial obligations. Money left over should be noted.

Next, make a list of your creditors and their contact information. Decide who the priority is in the debt settlement process. Perhaps you need to contact your highest-interest credit card provider before you contact your medical provider’s office. There is no definitive answer as to who should come first so you’ll have to figure out which debts need settlement first.

The Negotiations

Once you have established your creditor list, contact the highest priority creditor. It may be wise to ask for a manager as soon as the phone is answered to ensure you are speaking with someone who has the authority to give you the answers you need. Be upfront with the company representative and briefly relate your current or impending financial hardship.

For instance, if you have just been laid off from work, let the company know the situation and how long you expect the hardship to last. Ask if there is an acceptable amount of money less than the balance you owe that you could pay to settle the debt in full since you anticipate being unable to fulfill your monthly obligation for long. If the manager can not accept a one-time payment, they may be able to suggest alternatives such as lowered monthly payments for a period of time. If you do not have the amount of cash necessary to settle the debt, ask if they will rework your payment obligations on a monthly basis.

Whatever arrangements can be made with your first creditor, be sure to request the details in writing from the company. In some cases, consumers have neglected to get a copy of the arrangements in writing and therefore were later unable to prove their deal, making them responsible once again for the total balance due regardless of previous payments being made on the account. Most creditors will not go back on their word but the written confirmation is the only proof you have on your side as a consumer.

Once you have settled the debt with the first creditor, you’ll need to re-evaluate your finances to see what debt to tackle next. In the situation where one creditor refuses to settle your debt for a lesser amount, move on to the next and do your best to keep your monthly payments going, even if you are only paying the minimum due.

Why Waiting Is Devastating

If you wait too long to contact your creditors to keep an open line of communication, your debt problems will only grow and compound financially. The added fees, penalties, and interest charges only mean you’ll have a bigger balance to fork over. As soon as you know that times will be tough for you financially, reach out to your creditors for help.

Realize you are not the only debtor with financial hardships. In most cases, creditors will be open-minded and flexible if you give them the opportunity. They are not blind to the state of the current economy and may have resources and options you do not even realize that can significantly help you pay off owed balances. Until you open up and admit where you are heading, you will get nowhere in your pursuit of your debt relief goals.

Don’t wait for collection calls to start or for someone else to step in. You are responsible for your debts and the earlier you are able to reach your debt elimination goals, the faster you can get back on the right financial track.


5 Steps To Debt Freedom

Experiencing personal debt can feel like falling into quicksand: no matter how hard you try to climb out, you just keep sinking further down.  In a society where more is better, it can be difficult to watch your peers enjoying the finer things in life while the collections agencies are knocking at your door.

If you’re in debt, you’ve probably made yourself a lot of big promises.  “I will conquer this,” you’ve said, and three days later you were completely overwhelmed.  This may be what’s tripping you up.  The world’s problems are not fixed overnight, just like weight isn’t lost by taking one magic pill.  Be honest with yourself.  Arm yourself with knowledge both about your own behaviors and the many options available to help you reach debt freedom.

5 Steps To Debt Freedom

Step 1 – Understand Your Situation

First, know what you’re dealing with.  Take a pad of paper with you wherever you go for one week and write down everything you spend.  Then rate each purchase on a scale of “must have” to “want to have” to “don’t need.”

If you rely more on debit cards, sign up for a money-tracking site like to have your spending automatically tracked and categorized.  This will also help you evaluate how you pay for your purchases.

If you have more than one credit card, cut the extra ones up.  Once you’ve evaluated your spending, cut out your “don’t needs,” and think critically about your “want to haves”.  Is there any way you can make them cheaper?  For instance, if you “want to have” coffee, can you make it at home six days out of seven?  Can you use generic rather than brand products?

You don’t need to cut out all of your creature comforts, but by identifying them as such, you can determine just how important they are to you, and instead use them as occasional rewards rather than as givens.

Once you’ve made these decisions, add up all that you’ve cut out.  If you’ve saved, say, $300 per month, this is money you will be able to apply in later steps to paying off your debts.

Step 2 – Organize Your Debt

Next, open up a spreadsheet and start making columns.  Make one column for your fixed expenses-costs that do not change, like mortgage or rent, health insurance, and so on.  Make another column for your variable payments-things like gas, gifts, and restaurants.  Make one more for your debts, and another for your income.

In your debt column, highlight “good” vs. “bad” debt; that is, student loans with lower interest rates vs. credit cards higher rates.  Then add it all up. This is a great way to visualize just where your money is flowing and what you can do about it.

Step 3 – Make a Spending Plan

Now, make a spending plan.  Start by paying your fixed expenses and minimum balances.  Then pay any variable expenses you must to avoid going into more debt.  These are the things you just have to do to keep your head above water.

Take a look at that $300 you’re now saving every month by cutting out extras.  It’s not just a lump of money; it can do things!  Put that money away in a savings or money market account with as high an interest rate as you can find, and keep doing so until you reach the $1,000 mark.  This is your emergency fund; it will help you stay out of more debt should something unexpected come up.

Step 4 – Eliminate Debt Strategically

Choose a target.  Which debt do you want to tackle first?  Start on one with a higher interest rate.  19% might not seem like a lot more than 15%, but it adds up quickly.  If you have many debts with high rates, call the companies and try to renegotiate for a lower one.  You’d be surprised what the term, “I’m a loyal customer” can do!

Step 5  – Increase Your Income

If you’re finding after taking these steps that you still do not have anything left to pay off more than the minimum balances on one debt at a time, then it may be time to consider increasing your income.  This could be by searching for a higher-paying job, but if this is too intimidating, stick to that small steps mentality.

Can you make that extra $300 per month by babysitting? How about working in a coffee shop, or doing some freelance work on the side?


To summarize, that’s: one credit card (or none!), cut out extras, pay off minimums, focus on one high-interest debt, increase income. You may also want to try old fashioned approaches, like paying only in cash, separating all of your expenses into envelopes labeled, “fixed,” “variable,” and “debt” and not spending anything after those envelopes are empty.  You can also put limits on your cards, or make automatic alerts on an online payment tracker.

Remember, this is about understanding your own mentality.  What can you do to make money more concrete to you?

Feeling overwhelmed?  Here’s a little secret: we all have debt-especially those people you see driving fancy cars.  The theme in any “get out of debt” plan should be moderation.  If you find yourself sliding, try to figure out why rather than beating yourself up.  Did you have a tough week and really need an extra purchase on iTunes?  This shouldn’t be a big deal now that you know your finances intimately.  Just look at your upcoming week and see how you can make up for it.

If you ever start really feeling deprived, make a wish-list and write down things you desire as they come up.  Once you’ve addressed your debt, look back at that list and see what things you can now afford.  You may find that time has satiated those desires more than the purchase itself.

While paying off debt is never fun, remember that you’re paying for your future.  Get the past settled so you can move on and start doing what you’d really like to with that hard-earned money!


Why Debt Settlement May NOT Be The Best for You

You’re overwhelmed with credit cards.   You make your minimum monthly payments.  Your balances never decrease.  And you feel trapped in a hole with no end in sight.  Sound familiar?  You’re not alone.  Many people in this situation are looking for the fastest way out.  As they surf the web to look for debt relief options, they will most likely stumble across on an advertisement that says something along the lines of, “Reduce your debt by over 50%, cut your monthly payments in half!”  On the surface, it sounds almost too good to be true.  You decide to call a debt settlement company, and can’t turn down an offer to pay your creditors a fraction of what you actually owe!

Here’s the catch.  Most debt settlement companies fail to tell you in detail all the pitfalls that are associated with the program.  Don’t get me wrong, a debt settlement program is great for those who are suited for it.  I’ve personally seen some creditors negotiate a settlement for as low as .20 on the dollar!  Before you enroll in this type of program, it’s crucial to know what the downsides are.

What you need to know about a Debt Collection Settlement

  1. Collection Calls – Most debt settlement companies will tell you that they can stop creditor calls just by sending them a cease and desist letter.  This is half true.  According to the FDCPA (Fair Debt Collection Practices Act), a collection company must cease communication with the consumer if they sent a cease and desist letter.  However, this only applies to 3rd party collection agencies.  No one can stop the original creditor from calling you.
  2. Increase in balances- I’ve heard this statement way too often.  A debt settlement company will tell you that they will negotiate on the balance at the time of your enrollment.  However, many consumers fail to realize that once you stop making payments, late fees and penalties will be assessed.  If you enroll an account that has a $2,000 balance, don’t be surprised if you see a balance as high as $3,000 at the time of settlement.
  3. Possible Legal Action- This is perhaps the scariest thing a consumer can go through.  A sheriff delivers a court summons to their front door step, and now the creditor wants to sue the consumer.  If a creditor wins a judgment, the court can order wages to be garnished or a lien attached to any personal property.
  4. Taxed on $$ Forgiven- Let’s say you owe $10,000 on a credit card.  Your debt settlement servicer successfully negotiates a settlement at 35%.  The amount saved ($6,500) may be taxable income.  Any debt forgiven above $600 must be reported to the IRS.
  5. Credit Score– I thought I’d throw in the obvious as well.  Enrolling in a debt settlement program will literally destroy your credit.  You will have delinquencies on your credit as well as potential collection accounts.

After reading this, you might think that no one in their right mind should enroll in a debt settlement program.  That’s not necessarily the case.  Potential candidates for this program will have these characteristics:

  1. Judgment Proof- Just because you are judgment proof doesn’t mean a creditor can’t sue you.  Being judgment proof simply means that a creditor cannot garnish your wages due to federal or state guideline and you have no assets.
  2. Insolvency- People who are insolvent (owing more than what they are worth) are good clients for debt settlement because they won’t be liable for the amount forgiven.
  3. Access to Emergency Funds- In case a creditor is willing to give a substantial discount on a card, you should have some kind of emergency funds (friends, relatives, family, etc) who will be able to help you out.
  4. Ability to complete program under 36 months- Anyone who cannot complete a program within 36 months in a debt settlement plan probably shouldn’t enroll.  If it takes you more than 36 months, bankruptcy is probably the best option.

To summarize, each debt relief option has its pros & cons.  It’s important to fully understand the ramifications of each program before you commit yourself.  Debt settlement is a wonderful option for those who need to get out of debt, but only a certain percentage of people are good candidates for this type of program.