If you’re stuck in a cycle of minimum payments that never seem to get you anywhere, then it’s time to get serious and consider your options for relief. As you decide what to do, here are some important points to keep in mind, so you can make informed choices that put you in the best possible position to recover. Doing debt relief right is a matter of practice and discipline.
The do’s of credit card debt relief
Take stock of where you stand
As people fall into debt problems, it can be all too easy to bury your head in the sand and start to ignore your debt. But if you want to find a solution, you need to get real and be honest about what you owe.
Take full stock of each debt you owe, including the balance, interest rate, status of the debt, and monthly payment.
Keep making minimum payments, if possible
While you search for a solution, try to keep up with the minimum payment requirements on your bills. This will help you avoid damaging your credit, which can limit your ability to use do-it-yourself debt relief options.
Ask friends and family
Although it’s not easy to talk to people when you’re facing financial challenges, talking to friends and family can help you get a real perspective on these solutions. You can learn if the people you trust had success with any DIY methods of debt relief. You can also ask for referrals if they had a good experience with a debt relief service.
Review a company and program carefully before you sign anything
Whether you’re getting a loan or setting up a debt management plan, make sure to review the company you’re working with carefully. You want to avoid predatory lenders that charge exorbitant fees and rates. Review your loan agreement carefully to make sure you understand
You also want to make sure you’re signing up for the right debt relief service. Some less-than-reputable debt settlement companies may try to pass their services off as a debt consolidation program. Others may charge high fees before performing any service
Make sure any company you’re working with is well-rated by an independent third-party review service. Referrals can also help. Only sign a formal agreement once you’re fully informed.
Stick with your action plan
Once you decide on a solution, be diligent and stick with it. Getting out of debt is not easy, but it’s worth it for the financial freedom that you will gain.
You may need to live on a strict budget while you get out of debt. Even if you use a debt consolidation loan or other do-it-yourself solution, you need to budget carefully to avoid making new charges on your credit cards.
Rein in your spending, save whenever possible to cover emergencies and see your solution through to the end. Otherwise, you may be back to looking for a new solution.
The don’ts of credit card debt relief
Don’t consolidate on your own unless you can balance your budget
Any solution that takes out new financing to pay off existing debt can be risky. Debt consolidation loans, refinancing, and HELOCs will all pay off your existing credit card balances. However, the accounts remain open. If you’re not careful you can run up new balances. Instead of becoming debt-free, you end up with even more debt to pay off.
Consolidating on your own will only work if you can balance your budget to avoid making new credit card charges. This means you will need savings to cover emergencies and unexpected expenses. If you can’t balance your budget and stick to it, consolidating on your own is unlikely to work.
Never use a solution without knowing the cost
Every debt relief option has a cost. Even filing for bankruptcy costs money. You must understand the costs associated with a solution before you use it. Make sure to ask about fees and interest rates. Understand penalties that may apply if issues arise.
If you’re using a debt relief service, be aware that debt settlement and consumer proposals tend to have much higher costs than credit counselling or an OPD program.
Waiting around with the hope that things will get better just gives you more time for things to get worse. Your debts are only going to keep growing and more time gives you more months to miss payments and damage your credit score.
Take action as soon as you realize there is a problem. If you need help, start making calls immediately. Don’t wait.
Never let emotion rule a practical decision
Feelings of fear, shame, or embarrassment are common when you’re dealing with debt problems. You may wonder how you got in this situation and worry about others finding out about your challenges. Asking for financial help can hurt your pride.
Just realize that you’re not alone. You are not the first person to face these types of challenges, and the people who will be helping with are only going to have empathy for your situation.
Don’t let negative feelings keep you from getting the help you need.
Don’t slip back into bad financial habits
Learn from this situation and take steps to ensure you can avoid financial hardship in the future. If bad habits such as overspending or lack of planning led to the challenges you’ve faced, take steps to do better moving forward. Develop a larger emergency fund, start working with a financial advisor, maintain a budget that avoids credit card debt.
Seriously approaching debt relief right away is the fastest way to get it behind you. Take this as a learning experience and develop a better financial plan moving forward. And avoid falling back into the same financial habits that led to this situation.
Still unclear about the Do’s & Don’ts of Debt Relief? Fill out the form to speak to a counsellor!