At one time or another you may find yourself in a financial crisis with too many debts outstanding. You can choose to consolidate your debts or pick any other way out from among the other various options available. The best option depends on the level of your debts, your discipline (ability to commit to an option) and your future prospects. Below is a summary of these alternative options.
- Self-help.
This entails listing all you sources of income, fixed expenses such as mortgage and variable monthly expenditures. Self- help requires utmost honesty with yourself or else you will end up storing more problems for the future. You then compare the lists and cut down on any unnecessary costs by, for example, paying utility bills using direct debit cards which have discount offers. Finally, you schedule your repayments and be realistic by working out what you can afford to pay without going beyond your budget. These steps will help in ensuring you meet your basic needs such as housing, food and healthcare.
- Contact your creditor(s) as soon as you start to struggle with you debts. Explain to them why you are having difficulty in repayment then try to come up with a manageable repayment plan. The lender may decide to suspend your payments for a short time, restructure you debt or repossess the debts if they are secured.
- Debt Relief Services. If you can’t work out a repayment plan with your lenders on your own, you should consider contacting debt relief services such as credit counselling who will advise you on how to deal with your debts. Be wary of illegitimate firms and high service costs.
- Credit counselling. Credit counselling organizations have certified and professional counsellors that give advice on financial management and developing budgets. Many institutions offer these services and referrals.
- Debt Management Program. Here, you deposit money each month with the credit counselling agency who then uses this money to pay your unsecured debts according to a scheduled agreement between you and your lender. There are many charities that offer this for free.
- Debt settlement Programs. This is offered by for profit firms. The firm negotiates with your lenders to allow you to pay a lamp sum settlement, usually less than the full amount owed. You deposit a specific amount of savings each month into an ‘account’ till It’s enough to pay off the settlement. In the meantime you stop making monthly payments to the creditors.
- This has long lasting and far reaching consequences on getting jobs and your credit scores. You are discharged by a court order from repaying certain debts. It offers a fresh start for people who have gotten into financial difficulty and cannot repay their debts.
Most debt options have an impact on your credit score, making it harder to open a new bank account or get a loan. It’s important to seek advice before embarking on any of the options.