Debt is a part of everyday life for most Americans, and indeed across the wider western world. Managed properly, that is no problem – with interest rates as low as they are, taking advantage of easy credit and favorable financial terms often makes a whole lot of sense.
However, in a world where many of us have more debt than savings, it is easy to see how the situation can quickly spiral out of control. If your debt is keeping you awake at night, the worst thing you can do is ignore it. When the amount outstanding is steadily increasing month on month, something will snap sooner or later and you will reach a point when you are forced to take action.
The faster you do something, the easier the problem will be to solve and the better you will sleep. Here are some of the options to consider
Prioritize your debts
If you’ve got a mortgage, a car loan, two store cards and three credit cards all after a piece of you each month, you’re certainly not alone. Here’s the thing, though, they will all be seeking different amounts at different rates. You need to keep a roof over your head and wheels under you, but those cards – write out a list, take a calm look at what they are charging and focus on paying off the ones with the highest interest rates first, just making the minimum payments on the rest.
Consolidate
Using credit to solve your credit problems? It’s not such a crazy idea. There are some great interest rates out there, and if you can pay off those high interest loans by taking out another loan at a lower rate, it has to make sense. Just make sure your read the small print – how long is the rate guaranteed, and what are the minimum repayments?
Strike a deal
In the UK, one of the most popular tools for taking control of spiraling debts is an Individual Voluntary Arrangement (IVA). You can read more about IVAs on this website, but essentially, it is another form of consolidation, but managed by an external third party. They will group all your debts together and sit down with you to discuss what you can realistically afford to pay each month. They then approach each of your creditors and arrange how these repayments will be distributed between them.
In many cases, this means the creditors will be receiving something less than the agreed monthly payments, and some of the balance. Will be written off, so there could be some impact on your credit score. But they will usually agree, as with this kind of formal arrangement, it is clear that you are paying as much as you can afford, which is all that anyone can ask.
Bankruptcy
The word bankruptcy sends a shiver down your spine, but if you have little or nothing in the way of assets, it is sometimes the best and most painless way to go. Your financial worries are taken out of your hands, you have enough money to live on and you will have the opportunity to start again with a clean sheet.
Ultimately, the most important things to remember are to get expert impartial advice and not to delay about doing so. You’ll be glad you took that first step.
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