How To Get Out Of Financial Trouble

Editor Debt-Credit Consolidation December 12, 2022

If you answered yes to one or more of the danger signals, consider your options before creditors take legal action against you.  Your wages could be garnished or you could be forced into bankruptcy.  Some people resolve their financial problems with discipline and self control.  Others seek help from non-profit financial counseling services.  Whether you do it yourself or seek help from professional credit counselors, your debt management plan will include these steps.

• Review your income and expenses. A careful analysis of your household income and expenses is the first step in digging out of debt.  You can use the Fact Sheet, Your Income and Expense Statement.

• Determine who and how much you owe. Assemble the following information for each of your loan accounts.

• name, address, and phone number of creditor
• attorney or collection agency address and phone number
• your account number
• balance owed, monthly payments, payment due date
• amount and date last paid
• type of legal action taken, such as garnishment or repossession
• co-signature or collateral securing the loan

• annual percentage rate of interest on each loan

Set up a plan for paying your debts. Figure out how you can repay each creditor and how long it will take to repay the debt.

The following options may help you decide when and how much you can repay:

• Analyze your income and expense worksheet, looking for ways to reduce current expenses.  Even small amounts will help.
• Consider selling assets such as stocks, bonds, jewelry, antiques.
• Consider ways to increase household income.
• Consider a home equity loan.  This option could put you further in debt unless income and spending habits are modified.
• Consider loan consolidation.  This option will reduce your monthly payments but will increase the length of the loan, usually at a higher interest rate.

Financial advisors suggest that you prioritize debts, giving first priority to mortgage, rent and utilities.  Second priority is credit cards, unsecured debts, and third priority is medical and hospital bills.

Focus on your financial situation and decide how much money you can pay to each creditor. Keep expenses to a minimum.  Avoid additional debt.  The goal is to pay off your debts and get back on track financially.

Inform Your Creditors

Now, you are ready to talk to creditors.  Contact each creditor before they contact you and explain your financial situation.  Most creditors will work with you if you give them a realistic repayment plan and follow through as promised.  Some creditors may even refinance the debt to reduce the size of your monthly payments if they are convinced that you are seriously trying to resolve your financial problems.

Creditors prefer to receive smaller payments rather than no payment and they prefer not to repossess your goods.  If you must send a smaller payment than promised, contact the creditor and explain why.  If you keep in contact with them, they are more willing to cooperate.