Dealing With a Debt Crisis

By: James D. Voigt

May 15, 2014

Debt is an increasing problem in the United States, with the average household having more than $15,000 in credit card debt, and total credit card debt being a staggering $854 billion.[1]  It is no surprise, then, that many families feel like they are in a debt crisis.  Bankruptcy is one solution, but under current laws not every family qualifies for bankruptcy.  Some families also simply choose to fight through their debt to avoid filing bankruptcy.  There are some important things to keep in mind when fighting your way out of a debt crisis.

1)      Prepare a written budget every month.  A written budget is critical in determining whether you have a spending problem, an income problem, or both.  Be sure to include commonly forgotten items such as holiday spending, oil changes, and so on.  It is also important for both spouses to be involved in the budgeting process, and a new budget needs to be prepared each month with amounts specific to that month.

2)      Do not ignore creditors.  If you are receiving calls from creditors, you should not ignore those calls.  This will only speed up the process of a lawsuit being filed against you.  Stay in regular contact.  Every two weeks usually is enough.  Be honest about what you can afford to pay each month and remain calm.  Creditors are well trained and they know that if they can make you angry or afraid that you may do whatever necessary to get them off the phone.  This can result in over-committing to one creditor and the inability to pay another.  Anytime you are in default, your creditor has the right to file a lawsuit.  But you can often delay a lawsuit simply by staying in regular contact and paying what you can, even if it is short of the monthly payment they are requesting.

3)      Pay with cash.  If you make purchases on a debit or credit card (even if you pay it off each month) you should strongly consider switching to a cash only system.  Credit card perks do not outweigh the burdens caused by your debt crisis.  The average consumer will spend about 40% more when purchasing with a card (credit or debit) as opposed to cash.  This is precisely why you can pay with a card almost everywhere.  Just 90 days on a cash-only system can help you diagnose issues with your budget because it forces you to pre-plan all expenditures and stay on budget.

Getting control of your monthly budget, being proactive with creditors, and paying cash will finally put you in charge of your finances and help you set a path to freedom from debt collectors.  If you are struggling with debt, our office can help you protect your rights under the Fair Debt Collection Practices Act and negotiate with aggressive creditors.  Give us a call to see how we can help.

[1] "American Household Credit Card Debt Statistics: 2014." NerdWallet Credit Card Blog RSS. N.p., n.d. Web. 15 May 2014. <http://www.nerdwallet.com/blog/credit-card-data/average-credit-card-debt....