New Year's resolution: Steps to help clients get out of debt and save money
By Steve Savant
The number one ranked New Year’s resolution is to lose weight by eating right and exercising. But resolutions two and three are securing control of your money by getting out of debt and starting to save money. But we can’t start saving money until we get our debt under control. You know your debt is out of control when you are afraid to open your bills. When you juggle bills, paying Paul one month and Peter the next. When you are making only the required minimum payments. When you have to pay for basic necessities like food, rent, or gasoline on credit because you’re out of cash, you’re out of control.
Many credit counseling agencies are available to help consumers who find themselves in financial trouble. Not all of these agencies work in a consumer’s best interest. A reputable credit counseling agency has counselors trained in budgeting credit and debt management. A good counselor works closely with you to develop a personalized plan to resolve your individual debt problems.
Debt management plan: A debt management plan (DMP) may be recommended by a credit counselor. In a DMP, you make monthly payments to the credit counseling agency, which then uses your money to pay your unsecured debts in accordance with an agreement between you and your creditors. DMPs are not for everyone and may have restrictions which are unacceptable to some consumers.
Debt negotiation: For a fee, debt negotiation firms offer to “negotiate” settling a debt with a creditor, often for 10 percent to 50 percent of the amount owed. These programs can be highly risky and can have a negative, long-term impact on your credit rating. The IRS may consider any debt forgiven as taxable income.
Credit repair firms: Companies or agencies that offer or promise to “repair” your credit record should be regarded as scams. The passage of time and a regular history of repaying your debts are the only way to truly “fix” your credit report.
Many of us have to deal with a financial crisis at some point in our lives. Whatever the cause, there are ways to overcome these financial problems. Often, the first step is to recognize that there is a problem. Then you can begin to take action to solve it.
Create a budget: One key step is to create a realistic budget; a cold, hard look at both your income and your necessary living expenses. Are there ways to increase income, as well as reducing expenses?
Talk with your creditors: Contacting your creditors and explaining why you’re having trouble paying your bills on time may lead to a reduced payment plan. Setting up an automatic payment plan from your checking or savings account can help establish how serious you are about paying your bills.
Check for mistakes: Your bills or credit report could contain errors that, once corrected, could provide some partial relief.
This is the starting point. It’s a beginning. It's baby steps towards financial wholeness.
Here’s a video interview providing more information on getting out of debt.