Finance Q&A: Help for The Financially Desperate
- Tuesday, June 23, 2009
Q: The past year has been nothing but difficulties for me as I got myself into so much debt. My salary does not cover my expenses and my boyfriend does not work to assist. Things have gotten so bad that my daughter had to be removed from school, as we could not afford her school fees any longer. I owe the bank a lot of money. I have been handed over to debt collectors and although I have made arrangements, I cannot even pay these arranged payments. There are days when there is no money to buy food or put gas in the car. What do you recommend? How do I proceed from here?
Thank you. – Desperate
A: Your options are quite limited when you don’t act proactively. When it comes to financial matters, staying out of the financial danger zone is essential. If your income doesn’t cover your expenses, you need to increase your income or drastically cut expenses and spending.
1) The first step to restore financial order in your home is to organize your papers. Financial disorder causes late payments, late fees, higher interest rates, and more debt. Organize bills to be paid, receipts, and overlooked notices, filing them in one location.
2) Analyze your financial situation. You say there’s no money left for food or gas. You’ll need to realign your priorities. Examine the underlying issues of overspending. Unless you examine the root causes for getting into debt, it is likely that you’ll continue with the same money habits. List all of your monthly expenses and your monthly payments. What expenses can be lowered or cut? Establish a budget, or spending plan, and stick to it. The goal is to have money left at the end of the month, so you can save for the future. Take charge of your financial situation.
3) Work with your creditors. After all, you owe them money. Develop a workable debt-management plan. Just as it took some time to get into a financial mess, it will take awhile to get out of it. Make steady progress on debt repayment to creditors, paying on time.
4) If you need additional help and the financial distress seems overwhelming, seek the services of a nonprofit credit counseling agency. Talk with professionals certified through the National Foundation for Credit Counseling (NFCC).
Dear Deborah, Q: My husband and I are in the process of paying off our debt. We’re recently married, but as a bachelor my husband did some debt consolidation. There used to be 12 creditors but now we’re down to only 4. We pay $48 monthly for their services. I’m curious if we can cancel membership and just pay on our own or if we can negotiate to lower the monthly fee. I feel it’s too much money to spend on fees, and that we can save to pay for debt repayment instead. What would be the best thing to do in this situation? Thanks. – Jemma
A: If you’re considering canceling your membership, I suggest you talk with your credit services counselor. The monthly fee you currently pay is a standard amount. This fee typically depends on state guidelines, according to how many creditors they’re working with or total debts outstanding. Depending on the income-to-debt ratio, sometimes monthly service fees can be waived. If you drop the membership and work with creditors directly, you’ll likely have higher payments and higher interest rates. Some credit services may charge a fee for dropping out of the program.
Copyright 2009 Deborah Nayrocker. All rights reserved. Permission to reprint required.
Deborah Nayrocker is the author of The Art of Debt-Free Living and Living a Balanced Financial Life. Her Web site is http://www.artofdebt-freeliving.com/.
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