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If the wealth walls are closing in on you and creditors are upping the repayment ante, you may not be thinking clearly. It is important to realize you have options and like for anyone in financial trouble, many are free. Here is your action plan:
Most people put the roof over their heads and key utilities first. Seek to pay them. With your mortgage, however, it is worth going straight to a lender, explaining the situation and asking for “hardship” provisions. It must extend a degree of lenience, for example freezing your loan repayments or at least temporarily reducing them and may even do so permanently if it means getting the money back
Get in touch with the hardship departments of all other creditors to try and buy you time. See a debt counselor – also for free. The National Debt Helpline will refer you.
If you have assets like a house, you could lose it.
The process is quite onerous, but it is possible to get at your super on hardship grounds. What you don’t want, though, is to find you with no house and reduced super. It should be a last resort.
Signs of Carrying Too Much Debt
Take a minute to calculate how much you spend on debt payments each week. Pull out your credit card statements and other financial reports, tally your minimum debt payments, and then compare this figure to your monthly income. In a perfect world, debt payments should not exceed 36% of your gross monthly income. But if you’re spending 50% or more on debt payments each month, it’s time to make some financial adjustments.
Working simply to pay off your debt is exhausting and can lead to burnout. While you can’t do anything to get rid of credit card debt overnight, you can take steps to eliminate other debts. For example, you can rent a cheaper apartment, or get a roommate to lower your expenses. There’s also the option of selling your car and lowering your car payment. Do you have a timeshare? If so, consider letting the property go to reduce your debt payments.
The amount of debt you owe affects your credit score. The more debt you carry, the harder it is to get new credit. Your streak of credit approvals can quickly come to an end as lenders and creditors review your applications and decide that you’re overextended.
Creditors and lenders send rejection letters after turning down credit applications, and these letters often explain the reasons behind a rejection. Common reasons include a low credit score, no credit history, high balances, and, sometimes, too much credit.
A comfortable nest egg is a sign of good personal finance management. This provides income after a job loss and cash for other emergencies. However, if you’re spending all your money on debt payments, there’s probably little left for savings.
Earning additional income from a side job or a pay increase doesn’t have to preclude buying a bigger home or a better car. Take a look at your personal savings accounts: How much do you have in liquid funds? Do you have at least six month’s income in a cash reserve? Lack of a savings account can indicate a huge problem especially if you’re constantly shopping and accumulating new creditors.
If you can barely afford the minimum payment on your credit cards, you’re likely carrying too much debt. Get on the phone and plead with the credit card companies to lower your interest rates. If you’ve paid on time and you have a good history with the creditor, the company will likely work with you.
Otherwise, transfer balances to a card with a low introductory offer rate. In this scenario, it’s ideal to pay off your debt – or as much of it as you can – during the intro APR period before it adjust to the higher standard APR. While a rate decrease will lower your current minimum payment, if you continue to pay the original minimum, you’ll decrease the debt faster.
Too much debt often results in credit cards that are nearly maxed out. Furthermore, creditors can repeatedly call your home phone or cellphone if you’re behind on payments. The stress of not being able to keep up with payments can affect your sleep routine, happiness, appetite, and anxiety level. If you’re constantly thinking about your debt or being reminded of your debt with collection calls you’re probably carrying too much.