Over the last few years in particular, many people have found themselves saddled with debts that leave them either broke before the month ends or robbing Peter to pay Paul, putting off one or more bills each month so they have enough to pay the rest and eat every now and then.
There are myriad reasons for having so many debts, not all of which are the person’s fault. Granted, some people used their credit like a piggy bank, spending money they didn’t have on things they didn’t really need, but merely wanted. And while the practice of using credit to meet recurring expenses is not a good one, many people who have experienced a drop in income or even the loss of a job were left with no viable alternative. In both cases, the decision to pile on debt was probably based upon an overly optimistic belief that the hard times would end shortly, and the money to catch up and get ahead would begin to flow in a short amount of time.
Unfortunately, for some, that “short amount of time” stretched into the better part of a decade. Now that the job situation is improved and continually improving, these people are finally seeing real signs that they can begin reducing those debts. But what about those whose existing responsibilities add up to more than they are making at their new jobs? Thankfully, there are a few options available that might not have been available before.
Negotiating With Creditors
As determined as credit card issuers, banks, and finance companies are to get every cent they are owed, according to the terms of their initial agreements with debtors, they are quite aware of the circumstances that many of their customers have experienced, and most are willing to work with customers who contact them and make good faith efforts to resolve their debts. The first thing a debtor needs to do, therefore, is to contact the lender directly – preferably before getting into arrears on payments – to explain the situation and ask the creditor for an extended payment schedule, and perhaps a waiver of at least a portion of the interest and any penalties due. Being fully informed and forthright about the details and nature of one’s debts is crucial to the success of such negotiations, and too many people make the mistake of not having that information at hand (among other common mistakes) before they call.
There is no reason to be embarrassed about making such requests, and every reason not to let one’s embarrassment prevent one from making the calls. Creditors have no reason to work with customers who don’t alert them to the fact that they need some help.
Work Through a Credit Counseling Service
Virtually every country has some form of not-for-profit credit counseling service for people who are over their head in debt. Some services will only advise the debtor as to his or her best options, while others will actually represent debtors in their negotiation with creditors. The debtor needs to have an idea as to what level of services he or she requires, and to compare it to the services the counseling service offers, so as to not waste their own or the counseling service’s time. These services are often listed in the government services section of a local telephone directory, and virtually all of them have a web presence, often with the capability to fill out financial information forms to help them with their assessments of their clients’ financial conditions.
There are also numerous for-profit firms that offer the same type of services. Many of these make fantastic claims of being able to help customers pay off their debts for pennies on the dollar, and some claim to provide assistance for the elimination of debts altogether. Before using one of these services, the customer needs to find out how much the company charges for the service, and what methods they will use in the process. Some charge a percentage of the outstanding debt for contacting and negotiating with creditors, which the customer could have done themselves for free. And some companies offer what is little more than a boilerplate bankruptcy service at exorbitant fees, which leaves the customer not only with a new debt, but with a negative entry on their credit report. It is truly a case of “let the buyer beware.”
The debtor who has managed to remain current on payments and whose credit history is still in good shape might discover that he or she is able to get a loan large enough to pay off all creditors. This is the ideal option, since it not only has the potential to reduce the monthly outlay and total interest charges, which are likely to be significantly higher on credit card and short-term loan balances, but also serves to further establish a good credit history.
For the debtor who has a less-stellar credit history, however, this option is not usually available. Debtors who cannot qualify for an unsecured loan of this type might consider applying for a loan on which a family member, friend, or professional associate co-signs the loan agreement, contractually obligating themselves to repay the loan, should the primary borrower default for any reason.
Asking another person to agree to acting as co-signor is asking them to place a significant amount of trust in the person making the request. Their acceptance should not be taken lightly, and every effort should be made to live up to the agreement. Failure to do so could severely impact the debtor’s relationship with the co-signor, and could negatively impact the co-signor’s credit standing, as well as the defaulting debtor’s.
No matter what method one uses to better manage his or her debts, the most important element is the debtor’s commitment to making arrangements that he or she can live with, and being committed to living up to those commitments. Failure to fulfill this primary objective will only delay and possibly worsen the situation the debtor is trying to resolve debt management