How to Handle Debt Leftover from the Recession
The result of the recession
Now that the recession is over, people are still having a difficult time managing. Though the market is showing some signs of stabilizing, people are still trying to get out from under the huge debt they stored up. If you are one of the millions of people who are struggling with debt survival, here are some tips on how to handle your finances.
How to handle debt
There are some things to do if you have debt. Here are the most important:
- Budget. Get on a strict budget. This is of premiere importance when you are mired in debt. You want to know where the debt problems are and what you’ve done to create it. Write down everything you spend for a month—from your daily coffee to child care. Get specific with where your money is going down to the penny. Once you have that, then categorize your items as necessities or discretionary.
- Plan. Have a debt plan to pay down your highest interest cards first. You want to minimize the time you are paying on them because they are costing you more in the long run. The best thing to do is write everything down and start paying one by one. Work on the highest, then the next, etc., until you work your way down to the smallest debt you have. For bigger amounts it may take a second job to help, but you’ll be thankful you made the extra effort when your credit card debt is gone.
- Consolidation. Should you consolidate or not? We’ve all seen the commercials for consolidation. They advertise as if the one move to work with them will solve all your financial problems with one phone call. That is not true. The basics of a consolidation company are that you are taking one big loan to cover all of your existing payments. It can work if you are willing to sever your credit card payments afterwards. Also, beware of consolidation firms that ask for large upfront fees to fix your credit. You can do that yourself with some care and organized work.
- Be honest. It’s important to do some self-analysis and find out why you got into debt in the first place. Was it due to overspending? If so, why? Is there an emotional reason you are spending so much? If you knew you didn’t have the money, what compelled you to buy anyway? You need to know what beliefs are going on in your head when it comes to spending and be willing to change them. The worst thing you can do is get on track financially, only to fall back into your old patterns of spending.
- Collectors. If your debt gets to the point of having collectors call, you need to know what your rights as a consumer are. Debt collectors cannot harass you or abuse you. They cannot imply that you have committed a crime or imply that you will be arrested if you don’t pay a debt. You have the right to tell them to not call you at work or home.
Moving forward with debt
It’s important to understand the rules of debt and how to manage it. Understand that it is up to you whether you want to get out of debt for good. A lot of it involves taking a hard and cold look at your former actions, and then being proactive about changing them in the future.