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Taking Charge of your debt
Developing a Budget: The first
step toward taking control of your financial situation is to do
a realistic assessment of how much money you take in and how
much money you spend. Start by listing your income from all
sources. Then, list your “fixed” expenses — those that are the
same each month — like mortgage payments or rent, car payments,
and insurance premiums. Next, list the expenses that vary — like
entertainment, recreation, and clothing. Writing down all your
expenses, even those that seem insignificant, is a helpful way
to track your spending patterns, identify necessary expenses,
and prioritize the rest. The goal is to make sure you can make
ends meet on the basics: housing, food, health care, insurance,
and education.
Your public library and
bookstores have information about budgeting and money management
techniques. In addition, computer software programs can be
useful tools for developing and maintaining a budget, balancing
your checkbook, and creating plans to save money and pay down
your debt.
Contacting Your Creditors:
Contact your creditors immediately if you’re having trouble
making ends meet. Tell them why it’s difficult for you, and try
to work out a modified payment plan that reduces your payments
to a more manageable level. Don’t wait until your accounts have
been turned over to a debt collector. At that point, your
creditors have given up on you. Dealing with Debt Collectors:
The Fair Debt Collection Practices Act is the federal law that
dictates how and when a debt collector may contact you. A debt
collector may not call you before 8 a.m., after 9 p.m., or while
you’re at work if the collector knows that your employer doesn’t
approve of the calls. Collectors may not harass you, lie, or use
unfair practices when they try to collect a debt. And they must
honor a written request from you to stop further contact.
Managing Your Auto and Home
Loans: Your debts can be unsecured or secured. Secured debts
usually are tied to an asset, like your car for a car loan, or
your house for a mortgage. If you stop making payments, lenders
can repossess your car or foreclose on your house. Unsecured
debts are not tied to any asset, and include most credit card
debt, bills for medical care, signature loans, and debts for
other types of services.
Most automobile financing
agreements allow a creditor to repossess your car any time
you’re in default. No notice is required. If your car is
repossessed, you may have to pay the balance due on the loan, as
well as towing and storage costs, to get it back. If you can’t
do this, the creditor may sell the car. If you see default
approaching, you may be better off selling the car yourself and
paying off the debt: You’ll avoid the added costs of
repossession and a negative entry on your credit report. If you
fall behind on your mortgage, contact your lender immediately to
avoid foreclosure. Most lenders are willing to work with you if
they believe you’re acting in good faith and the situation is
temporary. Some lenders may reduce or suspend your payments for
a short time. When you resume regular payments, though, you may
have to pay an additional amount toward the past due total.
Other lenders may agree to change the terms of the mortgage by
extending the repayment period to reduce the monthly debt. Ask
whether additional fees would be assessed for these changes, and
calculate how much they total in the long term.
If you and your lender cannot
work out a plan, contact a housing counseling agency. Some
agencies limit their counseling services to homeowners with FHA
mortgages, but many offer free help to any homeowner who’s
having trouble making mortgage payments. Call the local office
of the Department of Housing and Urban Development or the
housing authority in your state, city, or county for help in
finding a legitimate housing counseling agency near you.
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Further Information
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