How to Cope with Debt

Are you having trouble paying your bills Are you receiving dunning notices by creditors? Are you being sent dunning notices from creditors? Are you concerned about losing your house or car? You are not the only one. Many people will face financial difficulties at one time or another in their lives. It doesn’t matter if the crisis is due to a personal or family emergency, loss of employment, or excessive spending, it can be overwhelming. It is possible to overcome it. Financial problems don’t have to get worse. Get to know better in

These are some options for those who are in financial trouble. Which option is best for you? It all depends on how much debt you have, how disciplined you are, and what your future prospects look like.

  • Self-Help
  • Services for Debt Relief
  • Be cautious when shopping for debt relief services
  • Consolidation of Debt
  • Bankruptcy



To take control of your finances, the first step is to make a realistic assessment about how much you earn and how much you spend. Begin by listing all income sources. Next, list your “fixed expenses” — the ones that are constant each month, such as rent or mortgage payments and car payments. Next, list any expenses that are not fixed, such as rent or mortgage payments. It is helpful to list all expenses, even the ones that may seem small, in order to keep track of your spending habits, prioritize necessary expenses, and identify your priorities. It is important to ensure that you have enough money for the necessities: food, housing, insurance, education, and health care. Information about money management and budgeting can be found online, in your local library, or in books. Software programs that can be used to create and maintain a budget, balance your checkbook, and plan for saving money and paying down debt are all useful.

Contacting your Creditors

If you are having difficulty making ends meet, contact your creditors immediately. You can explain to your creditors why you are having difficulty making ends meet and work out a modified plan to reduce your monthly payments. Do not wait for your accounts to be turned over to a collection agency. Your creditors will have abandoned you at that point.

How to Deal with Debt Collectors

Federal law governs when and how debt collectors can contact you. They cannot contact you before 8 a.m. or after 9 p.m. If the collector knows your employer won’t approve, they may not call you while you’re at work. Collectors cannot harass, lie to or use unfair tactics when trying to collect debts. They must also honor your written request to end contact.

How to manage your auto and home loans

You can have your debts secured or unsecured. Secured debts are usually tied to assets, such as your car or house for a loan. Lenders can take your car and foreclose on your home if you fail to make payments. Unsecured debts can’t be tied to an asset and include credit card debt, medical bills, and signature loans.

Many automobile financing agreements allow creditors to take your car if you are in default. There is no notice required. To get your car back, you will need to pay the remaining loan balance, plus towing and storage fees. The creditor might sell your car if you are unable to pay the balance. If default is imminent, it may be a good idea to sell the car and pay off the debt yourself. This will avoid additional costs and negative credit reports.

To avoid foreclosure, immediately contact your lender if you fall behind on your mortgage payments. If you act in good faith, and the situation is temporary, most lenders will work with you. Some lenders might reduce or suspend your payments temporarily. You may be required to make additional payments towards the outstanding amount if you resume regular payment. To reduce monthly debt, other lenders might agree to modify the mortgage terms by increasing the repayment period. Ask about any additional fees that might be charged for these changes and then calculate the total cost over the long-term.

Contact a housing counseling agency if you and your lender are unable to agree on a plan. While some agencies only offer counseling to homeowners who have FHA mortgages or are unable to make their mortgage payments, others provide free assistance to all homeowners. For assistance in finding a legitimate counseling agency for housing, call the local Office of Housing and Urban Development in your county, city or state.

Services for Debt Relief

You might consider getting debt counseling or debt settlement if you are struggling to pay off your credit card debt. You might be able to get help with your debts or formulate a plan to repay them, depending on which service you choose.

Check with your state Attorney General or local consumer protection agency before you do business with any debt relief services. You can ask them if there are any consumer complaints against the company you are considering doing business. Ask your state Attorney General whether the company must be licensed to operate in your state. If so, how many.

Do your research before you decide to seek financial help. Do your research to find out the services offered by a company, what it costs, and how long it takes to achieve the results you promised. Do not rely on verbal promises. Make sure you get everything in writing and carefully read your contracts.

Credit Counseling

Reputable credit counseling agencies can help you manage your money and debts. They also offer educational materials and workshops. They have been trained and certified in budgeting, consumer credit, money management and debt management. Counselors will discuss your financial situation and create a customized plan to help you solve your money problems. A typical counseling session lasts one hour. There are also options for follow-up sessions.

Non-profit credit counselors are the most reliable and can be reached at local offices, online or by phone. Find a counseling agency that provides in-person services if possible. There are many universities, military bases and credit unions. Cooperative Extension Service offers credit counseling programs that are not for profit. You can also get referrals from your financial institution, the local consumer protection agency, or family members.

However, “Non-profit” status does not guarantee that services will be free, affordable or legitimate. Some credit counseling agencies charge high fees that they might conceal or encourage clients to make “voluntary contributions” that could increase their debt.

Plans for Debt Management

A credit counseling agency might recommend that you sign up for a debt management program (DMP) if your financial problems are caused by too much debt, or inability to repay it. A DMP is not credit counseling and DMPs may not be right for you. Do not sign up for these plans until a certified credit counselor has reviewed your financial situation and provided you with personalized advice about managing your money. A reputable credit counseling agency can still help you to create a budget, and teach money management skills.

You deposit money each month to a credit counseling agency in a DMP. Your deposits are used to pay your unsecured debts like student loans, credit card bills and medical bills. The counselor will create a payment plan with you and your creditors. You may be able to get lower interest rates or waive fees from your creditors. It’s a good idea, however, to speak with all creditors to ensure they offer the same concessions as a credit counseling agency. To have a successful DMP, you must make timely and regular payments. It could take up to 48 months to complete your DMP. Ask your credit counselor for an estimate of how long it will take to finish the plan. It is possible that you will have to agree to not apply for or use any additional credit while participating in the plan.

Programs for Debt Settlement

For-profit companies often offer debt settlement programs. They negotiate with creditors to let you pay a “settlement,” which is a lump sum that is less that the total amount you owe. The program requires that you save a certain amount each month to make the lump sum payment. To accumulate sufficient savings to pay any settlement, most debt settlement companies ask you to transfer the amount each month to an escrow account. These programs also encourage clients to stop paying monthly debt settlement fees.

There are risks associated with debt settlement

A debt settlement company might be able to help you settle some of your debts. However, these programs have risks that you should consider before signing up.

1. You will need to deposit money in a savings account for at least 36 months before your debts can be paid. Many people find it difficult to make the required monthly payments for long enough to settle all or part of their debts. They end up dropping out of the programs. Be sure to review your budget before you sign up for any debt settlement program. Make sure that you have the financial resources to pay the monthly fees for the entire program.

2. 2.Your creditors are not under any obligation to settle the amount you owe. There is a chance that your debt settlement company won’t be able settle your debts, even if the monthly payments are not paid. Debt settlement companies will often negotiate smaller debts first and leave interest and fees on larger debts to accumulate.

3. Debt settlement programs may ask you to stop paying your creditors directly. This could have a negative effect on your credit score and lead to other serious consequences. Late fees and penalties can continue to add to your debts, which could lead you into more trouble. Your creditors and debt collectors may also call you to request repayment. For repayment, you could be sued. Sometimes, creditors can garnish your wages and place a lien on the property of your home if they win a case.

Debt Settlement and Debt Elimination Scams

Some companies that offer debt settlement programs might not be able to deliver on their promises. For example, their “guarantees” of settling all your credit card debts for 30-60 percent of what you owe. Others may attempt to collect fees from you before they settle your debts. Telemarketing Sales Rule by the FTC prohibits companies selling debt settlement or other debt relief services over the phone from charging fees before they settle your debt. There may be a problem with some companies not explaining the risks of their programs. For example, many clients may drop out before they settle their debts. Clients’ credit reports could suffer and debt collectors might continue calling them.

Do your research before you sign up for a debt settlement program. This is a major decision that will require you to spend a lot of money, which could be used to pay down your debt. A search engine will allow you to enter the company name and the word “complaints”. You can read what other people have to say about the companies that you are considering. This includes whether or not they are currently involved in a lawsuit against any state or federal regulators.


You may need to open a bank account for debt settlement companies. This will be managed by an independent third party. You own the funds and are entitled to any interest accrued. You may be charged a reasonable account administration fee. The administrator is responsible for transfer funds from your account to your creditors or the debt settlement company in case of settlements.

Disclosure requirements

The debt relief company should provide information about the program before you sign up.

  • Prices and terms. The company must clearly explain its charges and conditions.
  • You will get results. The company must inform you about the time it takes to achieve results. It should also tell you how many months it will take for each creditor to make an offer for a settlement.
  • Offers. Offers.
  • Non-payment. Non-payment.

You must also be told by the debt relief company:

  • The funds are yours, and you have the right to any interest earned.
  • The account administrator isn’t affiliated with any debt relief provider, and doesn’t receive referral fees.
  • You can withdraw your money at anytime without any penalty.

Tax Consequences

Any savings that you receive from debt relief services may be considered income or taxable depending on your financial situation. Credit card companies, as well as others, may report any settled debt to IRS. The IRS considers this income unless you are “insolvent.” If your total debts exceed your fair market value, you are considered insolvent. It can be difficult to determine insolvency. If you are unsure if you qualify, consult a tax professional.

Be cautious when shopping for debt relief services

Avoid any debt relief agency, whether they offer credit counseling, debt settlement or any other service.

  • Charges any fees before they settle your debts or enroll you in a DMP Plan
  • You are pressured to make voluntary contributions, which is another name for fees.
  • A “new government program” is proposed to help people with credit card debt.
  • It can guarantee that your unsecured debt will disappear
  • It tells you to stop communicating directly with creditors but does not explain the serious consequences
  • It will tell you that it can stop all debt collection and lawsuits
  • Guarantees that your unsecured debts will be paid for pennies per dollar
  • You won’t be able to receive free information about its services without providing personal financial information such as your credit card account numbers and balances.
  • Without reviewing your financial situation, they will try to enroll you into a debt relief program.
  • Offers to enroll you into a DMP, but not teach you money management and budgeting skills.
  • You will be required to make monthly payments to a DMP before your creditors accept you into the program

Consolidation of Debt

Consolidating your credit through a second mortgage, or a home equity loan may help lower your credit card costs. These loans will require that you pledge your home as collateral. You could lose your home if you fail to make your payments or are late.

Consolidation loans can also have costs. You may also have to pay points, which is one point equal to one per cent of the amount borrowed. These loans can offer tax benefits that aren’t available with other types of credit.


Although personal bankruptcy is an option, the consequences can be long-lasting and severe. A discharge is a court order that allows people to stop having to repay debts. The bankruptcy information, including the date of filing and the date of discharge, remains on your credit report for 10 year. This can make it hard to get credit, apply for life insurance, and sometimes even get a job. People who are in financial trouble and cannot pay their debts can still file bankruptcy.

There are two types of personal bankruptcy. Each one must be filed with the federal bankruptcy court. The filing fees can run into the hundreds. Visit the United States Courts for more information. Additional fees may apply and can vary.

People with steady incomes can use Chapter 13 to retain property such as a mortgaged home or car that they would otherwise lose in bankruptcy. The court approves Chapter 13 and allows you to use your future income instead of having to surrender any property. You will be discharged of all your debts once you have made all payments.

Straight bankruptcy is also known as Chapter 7. It involves the liquidation of all assets not exempt from creditors. Some exempt property includes automobiles, basic household furniture, and work-related tools. A trustee is a court-appointed official who may sell or turn over your property to creditors.

Both types of bankruptcy can be used to eliminate unsecured debts as well as stop foreclosures, repossessions or garnishments, and debt collection activities. Each type of bankruptcy allows you to keep certain assets. However, exemption amounts vary from one state to the next. In general, personal bankruptcy does not eliminate child support, alimony or fines. It also does not remove some student loan obligations. If you don’t have a plan to pay off your Chapter 13 debts, bankruptcy will usually not allow you to keep any property that your creditor holds on to it.

Before you can file for bankruptcy relief, you must receive credit counseling from a government approved organization within six months. The U.S. has a list of all the government-approved agencies in each state. Trustee Program is the U.S. Department of Justice organization that oversees bankruptcy cases as well as trustees. A “means test” must be completed before you can file Chapter 7 bankruptcy cases. You must prove that your income is below a certain level. The U.S. publicizes the amount, which varies from one state to another. Trustee Program.

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