Before understanding financial concepts like debt reduction, one needs to have an understanding of debt, in general.
There is actually a balance to debt. We don’t want to have too much debt, especially if it buries you and you are unable to pay back the money you owe. When you are unable to pay your debts, you are on the edge of buried in debt, if not already buried. We actually need to put a plan in order prior to that point but certainly at the time of being buried.
Life is not comfortable when we have reached the point of buried in debt
When you get to a point of being buried in debt, it is possible that your credit score is affected. The lowered credit score can affect your ability to make major purchases such as buying a home or even a car.
Keeping It Balanced
On the flip side, no credit is almost as bad as bad credit. So, it is important to at least have some debt.
It is important to understand how debt works and to have strategies in place. Ensure that you create debt (to raise your credit score) but always have money available to pay off that debt.
Also, if you are not in the position described, don’t beat yourself up, simply use the strategies below to dig your way out of the quandary you may find yourself in with debt.
While it is true that you need to have some debt, credit card debt is not the most optimal way to build credit. This is because you can actually use all of the available credit on your credit card (maxing the card) and then pay the minimum. For creditors, this does not prove that you are balanced when it comes to debt management.
Another sign of approaching being buried financially is when you start to have trouble paying your bills.
Ideally, you have your finances balanced to a point where you can survive (at least initially) if a job is lost or a medical or financial crisis hits.
It is very important to address your financial situation right away, with steady strategic methodology than hiding your head in the sand like an ostrich.
Another option is bankruptcy if you have become extremely buried in debt. If you have the experiences described above, like the job loss or medical situations, possibly bankruptcy is an option.
Don’t forget that you have the opportunity to rebuild your credit after you get yourself out of debt.
The process of managing your money will help you to build the self-discipline that is necessary to remain financially balanced. This also includes attempting to deter yourself away from the tempting loan and credit card offers that may come your way.
Sometimes debt collectors can really begin to harass you. While there may be a debt that is owed, there are laws protecting you in debt situations. You will want to ensure that you know these protective laws and your rights as a consumer.
For example, debt collectors cannot:
- harass you or become abusive on the phone;
- call you incessently;
- call you at work or while you are sleeping in the middle of the night.
You do not have to tolerate behavior that violates your rights as a consumer.
Some steps that you can take, to protect yourself in this situation include the following:
- Ask for the debt information in writing (and save this in case you need it for court or arbitration);
- Ensure that you receive the written notice within five days and be sure to file it (and all written communications) where it is protected (i.e. from spilled coffee, etc.) and easy to retrieve;
- If there is any discrepancy in the written notice, challenge it within 30 days;
- Record any conversations you have with the collector and keep in mind that in some states you do not have to inform them that they are being recorded so be sure to research the law on that.
Also, keep any receipts of payments and record any activity (i.e. logging in a notebook or on the computer) so that you have access to it if needed. Send any mail by certified mail.
Keep the voicemails of any call messages left for you by the debt collector.
Keep in mind that your rights as a consumer also means that the collector cannot disclose your information to 3rd parties. They cannot misrepresent themselves as attorneys or representatives of law enforcement or credit buureaus. If they do threaten you and you are able to catch this in a recording, you can use this to your advantage in your efforts to protect your consumer rights.
They cannot attempt to use old-school tacts like threatening you with debtors’ prison (which no longer exists) or threatening to take your house or seize other assets. That type of forfeiture comes by way of banks, sheriffs, etc. and not the debt collector on the other end of the phone line (unless it really is the sheriff you are speaking to or it has something to do with liens on your house, etc., which is another discussion).
Attempt to negotiate with debt collectors. A little-known fact (to consumers) but known to those who work as collectors are that often there is a low-end rate at which they can negotiate. No matter how tough the collector sounds on the phone, be tough and go for that low end. They are usually happy to get something on the dollar rather than nothing, so negotiate!
If you think you are paying a little more than what you anticipated in the negotiation, attempt to get the collector to remove the unfortunate instance from your credit report, which often they are able to do. Or, negotiate to not add the instance to your credit report (affecting your credit score). Get the negotiated deal in writing and don’t forget to record the phone call if at all possible.
If you do find that you are financially buried, the first step is to identify what has you buried. Sometimes laying it out with a spreadsheet is a helpful way to handle it.
The first step we need to take is to attempt to understand debt and debt management.
National Debt Relief Statistics
It is helpful to search for the current national debt statistics. I’d include them here but they change and so checking to see what those statistics are is more helpful. Understanding those statistics helps you to put your situation in perspective.
Statistics is a favorite pastime of mine. As it relates to debt definition, in terms of statistics.
Debt Reduction Strategies
The following are some age-old common strategies for debt management as well as some unique or out-of-the-box strategies. You may want to use a combination of strategies or pick one (or two).
After understanding debt, understanding the strategies available to you is the next phase of the complete picture. This complete picture of understanding debt is your foundation for moving forward in financial freedom (eventually). Remember, nothing happens overnight, but a slow steady approach, sticking to your goals, will get you there.
Strategy 1: Debt Consolidation
Debt Consolidation is a phrase we often hear even before understanding what it is or how to accomplish it. It is not unusual, especially in an economics class in high school, to hear the term even before one has acquired anything that would require a type of debt reduction service.
Among options for debt reduction are things like debt consolidation loans and soliciting the help of debt reduction companies to help with things like strategizing those debt relief programs.
Strategy 2: Credit Card Strategies
There are many different strategies that can be put in place to help manage credit card debt. The following are some ideas for you.
Credit Card Debt
There are many people who need debt relief help, and that tends to pool around the area of credit card debt and the need for credit card debt reduction tips.
Strategy 3: Reduce Spending
Go through your budget and find ways to reduce how much money is spent.
Strategy 4: Debt Programs
There are programs available to assist with debt reduction. But, one should be cautious and ensure that they have done the due diligence to examine the program(s). I have always managed my own financial situation and that of my family (being that it is a personal area of expertise and experience). Because of that, I may know quite a bit about finances, but would not be in a position to recommend any specific programs. So, as an example, if one were considering Freedom Debt Relief, reviews would be in order. Using a Google search to accommodate the research is a great place to start.
Strategy 5: Income Generating Options
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Even within income-generating options, there are improvements that we can make in our skill set. For example, maybe we need to improve our marketing of our freelancing business, helping to ensure that our pages generate traffic and that we are easily found online.
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In summary, we want to ensure that we are balanced in our debt, so that our credit score has the opportunity to improve. However, we don’t want to become buried, when it comes to debt. So, in summary, it is balance without becoming buried.