A lot of us have found ourselves overrun by debt at one time or another. This doesn’t mean you’ve failed, even the best of us end up a little behind from time to time. Are you feeling like this? Or know someone who is?
Maybe you lost your job. Maybe you helped a family member, or your partner was ill and you had to carry things for awhile. Debt has a way of attacking when we least expect it, and manages to take us down a few pegs without even trying.
Before you know it, you’re feeling behind, dreading calls from creditors, and avoiding bill payments until the last possible second. Maybe you don’t know what’s going to happen next month or how to get out of this mess.
That’s why you’re here. This article will walk you through some of the best steps to take to recover from a dance with debt. Remember that you are not alone, and that you can recover. Debt thrives on making us feel ashamed and avoidant of fixing the problems we’re having, so facing up to them is one of the strongest first steps to defeating debt.
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Step 1) Get in touch with those you owe, and communicate.
One of the first things people tend to do when they get behind on their bills is to cut off the lines of communication with their creditors. This couldn’t be a bigger mistake. Creditors are often more than happy to help work out a payment plan, anything that ensures they’re getting their money back as soon as possible.
Even if you know you aren’t going to be able to make a full payment this month, getting in touch with your creditors opens the lines of communication and thus the doors to opportunities like setting up an alternative payment plan, requesting a reduced minimum payment, requesting a debt reduction plan where you make a reduced upfront payment if you can’t pay off the full sum for some time.
Nobody promises that your creditors will listen, and some will be more flexible than others, but you lose nothing by asking for help – and you have a lot to potentially gain.
Step 2) Figuring out what you can pay, and how
This goes along with step 1 in some ways, but sit down and figure out what you can afford to repay each month, and where that income will come in from. To avoid digging yourself deeper into debt, this means you need to set a full budget for the household to manage both current incoming expenses and paying down your debts.
It will involve being honest with yourself about who you owe and exactly how much, as well as how much you have coming in and from where. This may sound daunting, but it is very freeing, we often feel a lot better once we have a plan in place to free ourselves from debt that we don’t get from avoiding it.
Step 3) Prioritise debt list
If you have several debts, prioritise them on a list. Which are the smallest? Have the highest interest rates? Or have the most power over your life? By sitting down and considering some of the impact of each debt, you can make an effective plan about who to repay first and when.
Step 4) Become your own best record keeper
When making budgets, debt lists, and payment plans, it’s important to be up to date in your record keeping. If your creditor agreed to a payment plan, write down the details of it and who you made the agreement with. This will help keep your creditor accountable, but it will also remind you of the upcoming dates and payments you have already committed to.
Record keeping is often assisted by software or apps, many of which are low cost (if any). I recommend you find a good solid budgeting software tool, as well as a tool for keeping records of bills and debts as you work to pay them off.
Step 5) Negotiate payment plans wherever possible, and consider a hardship request
If you’ve been reading along and following the steps, you’ll realize by this point you will have opened the lines of communication with your creditors. This means the doors are open for proposing a payment plan, and negotiating as much as possible to find something both you and your creditor can live with.
It is ALWAYS better to stay in communication with the company than to go further into the avoidance track, which just leads to more debt.
Some of the ideas in proposing negotiations with your creditor may include:
-Restructuring the debt in some way (maybe the payment term, or a consolidation option)
-Adding arrears debts to the balance itself, to repay them simultaneously
-Arranging to miss a payment date with an alternative already in mind
-Requesting a smaller minimum repayment as you’re working to get back on your feet.
This could involve a series of phone calls, an application, or a letter. The best requests are the ones you end up with written records of, to ensure both you and the creditor are on the same page.
If things are difficult, you may process a hardship variation request. A hardship variation request is an extreme request that allows you to apply for any or all of these adjustments with the understanding that it is all that you can do at this moment. Once a hardship variation request is submitted, the lender has 21 days to consider the offer and get back to you – during which time they will not be seeking repayment.
If it is approved, you will likely receive some level of relief from the debt (at least temporarily) and the debt may even temporarily cease to impact your credit rating. If it is not approved, you can appeal this decision with a financial ombudsman in your area, or seek further help from a professional counsellor.
Step 6) Consider outside resources
Keep in mind that in addition to the advice provided in this article, many communities offer free credit counselling services to help you through these processes and more. People are looking to help you find a way out as we speak, you just have to get connected with them. These credit counselling services can also be invaluable in negotiating with your creditors and working out a specific plan that’s right for you.
If you’re having major difficulties with your debt then we suggest you visit this website – National Debt Helpline
Creditors often also consider the reputation of these counsellors when making decisions about altering plans, so they know you’re serious about getting them paid and that can go a long way towards generating some goodwill.
Do not pay credit counsellors. There are a lot of paid services that offer to negotiate on your behalf, only to later hit you up with their own (substantial) fees. Look for a free resource in your area, they are available most places, if you’re looking for outside help.
Do you have any suggestions that can help people with their debts? We’d love to hear them if you do.