For most people, debt is a necessary evil part of life — with an emphasis on the “evil” part. This is because it doesn’t take long for manageable debt to spiral out of control.
And contrary to popular belief, according to experienced bankruptcy attorney Charles Huber, who is the Principal of the Law Office of Charles Huber, the majority of people with serious debt problems aren’t people who are taking exotic vacations or buying luxury cars, when they should be paying their bills and living within their means. On the contrary, in most cases people with serious debt problems are honest, hard-working individuals sincerely trying to regain control of their finances. Unfortunately, because of punitive interest rates and aggressive creditors, escaping the debt hole is an exercise in frustration and futility. They take one step forward, and their debt pulls them two steps back.
The good news is that living a debt-free life is not an elusive ideal. It is a practical reality — but only if you keep these three essential tips in mind:
- Monitor All Spending
Many people — including those who aren’t (yet) dealing with major debt problems — don’t know how much they spend. At most, they have a hazy, fuzzy “guestimate”; one that almost always vastly underestimates the gap between their income and expenses. Monitoring all spending, from car payments to Starbucks’ lattes, is the fundamental first step in escaping debt and avoiding recapture in the future.
- Cut Down on Discretionary Spending
Speaking of Starbucks’ lattes: yes, they’re good. Actually, they’re delicious. But people in debt shouldn’t be spending $5-$10 dollars a day (or more!) on upscale beverages. Cutting down on discretionary spending is easier than most people realize (or dread), and the rewards are immediate. And of course, it’s still fine to enjoy a latte every now and then!
- Renegotiate Debt
Here is a secret that creditors don’t want debtors to find out: in most cases they will renegotiate debt and settle for a lesser amount. Here is why: if creditors don’t get paid, then unless they have an in-house collection department, in most cases they will eventually sell the debt to a third-party. If that third-party ends up collecting the debt, the original creditor will receive a partial payment depending on various factors (the amount of the debt, the age of the debt, etc.). As such, some creditors will simply accept a lower amount now vs. run the risk and incur the cost of selling the account to a third party.
If These Tips Don’t Work…
Hopefully, the above tips will help you escape unsustainable debt now, and avoid it in the future (of course, manageable and reasonable debt is fine and in most cases like buying your first house, it’s necessary).
However, if your major debt problems can’t or won’t be solved, then seriously consider filing for bankruptcy. The moment you do, all collection activity — including interest, wage garnishments, communications, lawsuits, and so on — must cease. Your creditors will then get paid according to the court-appointed trustee, and you’ll typically be able to keep your house and other exempt assets, like retirement savings.
At the very least, speaking with an experienced bankruptcy attorney is a smart move, so that you can understand all of your options, and see what makes the most sense for your current and long-term financial health.