By Katherine Hegemann kittyhegemann@embarqmail.com
It’s no longer just a nagging worry living in the back of your mind. It’s obvious. It brings on the cold sweats, the jitters, and even an anxiety attack. You can’t sleep. Debt and the inability to pay everything you owe causes mental and physical pain.
Debt can make you get into a destructive mental loop. Maybe you did cause the debt to get out of control, but maybe you didn’t. You have to be realistic. So you really didn’t need that expensive, big house or extra car. Did you really need to buy all those top brand shoes? How about that fifty-two inch flat screen, high def, stereo television? Those are reasons you may have brought debt worry upon yourself. However, job loss, pay reduction, work hours reduction, and outsourcing are not your fault. Either way, you’re now in a bind when it comes to paying your bills.
Not only can debt hurt you mentally, but it can hurt you physically. When you worry about debt, your body increases adrenalin production to the point you can get sick. It plain wears you out. The results are fatigue and inability to fight off disease.
You can avoid the depression, illness and fatigue using a few simple strategies.
Essentials
First get out your stack of bills—all of them. Then get out your checkbook, bank statement, and any payroll stubs. Be realistic about what you owe, how much you make and how much you can pay each month.
You need some breathing room so you develop a plan to get a hold on your bills. You don’t want to ignore your debts and make things worse. And you don’t want to declare bankruptcy except as the last choice.
These days any late payment can hurt your credit score; however, if the debt is less than thirty days past due, you should be okay. There are times you might have to take a hit on your credit score just to survive. Taking that hit isn’t the end of the world, and once you get your finances stabilized, you can work on repairing your credit.
It doesn’t matter if you are a renter or have a mortgage, you need to know how late you can be and still remain in your housing. Renters need to check their leases. Home owners need to check their mortgage papers. You need to be sure what time frame you have before you lose your home.
The same rule applies to car payments. The time allowed for getting behind is on the loan agreement. Read that agreement and write down how far behind you can get and still not have the vehicle repossessed.
Other debts like credit cards, medical bills, personal loans, college loans, and a few others are called non-secured loans. Typically these creditors wait longer to begin collection proceedings, up to several months (1). That means if you can’t pay them, you can be taken to court, but creditors can’t come to your home and take anything to pay off the debt. Here in Tennessee creditors can garnish your bank accounts (2, 3). The courts may issue a lien against you that lasts for a defined time period. A lien is a legal claim on property collected if property is sold.
Consequences: the effects, results, or outcomes of something occurring earlier (4). Yep, owing money you can’t pay back has consequences. Before you don’t pay a bill or pay part of a bill, you have to consider what the consequences will be.
What you must pay
When you go through your bills and find that there’s not enough money to pay everything, you have to decide what you must pay. In talking with people, I’ve found that there are misconceptions about what to pay first. Here’s the truth.
Food and water, shelter and security should be at the top of your list. Paying credit cards should be at the bottom. We’re not talking about defaulting on debt, but this is a temporary delay until you can come up with a debt plan.
You have to buy groceries and some health items. Before you go shopping, sit down and make a weekly menu. Consult your health requirements for what you really need. Make a list with exactly what you will buy and the quantity. Go back over the list and make sure the items are what you need to buy. Revise the list adding or deleting items. Once you get to the store don’t change the list. When shopping, buy only what’s on the list and look to see if any of your items are on sale.
You have to pay your rent or mortgage. Well, that is unless you want to live in a tent. Landlords and mortgage companies will start legal proceedings within a few months if you don’t pay what you owe.
Your next main concern is your utilities. We’re lucky here in Johnson County that the utility companies will work with you, but you need to pay off what you owe before the next cycle comes due. What utilities am I talking about? You need electricity, one phone line, water and sewer, trash pickup, and maybe propane gas. This list depends on where you live and if you own your own home. Knowing that television reception is awful in these mountains, you should consider first if you really need cable or satellite. Try living without television service. The same is true for Internet access. This is temporary not permanent so you will just have to put up with less until you can get your debt under control. There’s an old saying: The best way to get out of a hole is to stop digging. So stop digging.
These three are absolutes; you have to pay them first. Period.
Secured loans come next. That includes car payments and secured retail loans for things like appliances. Companies that use secured loans will not wait very long before beginning repossession. The maximum time is usually ninety days.
Since we live in such a rural area, you will need one car. If you have other means of transportation, you should consider getting rid of them. That includes cars, trucks, motorcycles, or motor homes.
Finally there are unsecured loans like credit cards. They will eventually have to be paid off and late fees can pile up. Remember this is a temporary hold. Some creditors respond well to a letter explaining your situation. They might lower the interest rate, suspend late fees, allow you to pay less than the regular payment, or work with you in other ways. It’s a maybe, but it never hurts to try. A letter of your intent to pay the debt will go a long way to preventing a hit to your credit score. With the letter, you should include your plan to pay off the debt.
Before you act
One small task you can do to really help yourself get a handle on what you owe is to track the money you spend for one month. Some experts say that you can save up to twenty percent by doing this.
You still can’t find any extra money? Here are a few tips to help you out:
- Eat a bag lunch you make ten times a month.
- Watch a movie and eat that great popcorn at home.
- Clip coupons and buy store brands when you shop for groceries.
- Create and eat your favorite pizza at home and not order take out.
- Buy foods in bulk and use the freezer for storing.
- Get creative and give handmade cards and gifts.
- Shop at second hand, thrift and discount retailers.
Make a plan
There are some time honored ways to at least get all of your debt in one place. You can apply for a debt consolidation loan or take out a second mortgage that will go just to pay off debt. As long as you don’t make your situation worse, these two are pretty good ideas. If you are considering one of these options, you will need to go talk to a loan officer at your bank. Before you do either, consider if that is really the best option. If not, it’s time to make another plan (5).
The first step in making a plan is to get out your debt statements. Next, list each debt giving name of debtor, total amount owed, due date, interest rate (now and future), and minimum payment. You have a visual picture of what you owe.
There are two main attack plans to eliminate debt. One is to begin paying off the one with the highest interest rate. Another is to pay off some of the small debts first because they will give you a sense of success. Of course you’ll want to pay minimum payments for all debt. Perhaps your best bet is to combine the two methods. Pay more on the high interest debts plus work to pay off smaller amounts at the same time. The point here is to go beyond minimum payments and get rid of all of your debt.
There is always the choice of a credit counseling service. Just make sure they are legitimate and their fees are not too high.
You have to come up with a plan that you can actually complete. Whatever plan you adopt, stick with it. I know it’s hard to do, but making and keeping a plan is less painful than losing everything or having to declare bankruptcy.
Paying more
No matter your strategy, ALWAYS pay more than the minimum. Once you do that, you’ll be surprised at how quickly your balance goes down. The lower the balance, then the lower the interest payment.
Take a look at this example (6).
- You owe $2000 at 18.9% interest with a minimum payment of $80. Payoff time will be eight years and five months. Interest amount will be $1161.
- Again, you owe $2000 at 18.9% interest. But you pay fifty dollars more per month. Payoff time will be one year and six months. Interest amount will be $309.
That’s a big difference!
Not all debt is bad—I doubt most folks could pay cash for a home. Cars are the same. Each of us has to be realistic about how much debt we can handle. The problem arises when we get so deep into debt that we are facing a crisis. This takes a hard look at how much money you have coming in and how much needs to go out.
Once you are facing a debt crisis, you need to make some difficult choices. The good news is resolving your problem can be done with some sacrifice and planning.
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