Guidelines to Help Manage Debt

Consumer debt in the United States is at an all-time high. According to the Federal Reserve, the total consumer credit debt fluctuates between 16 to 21 percent. This means that 16 to 21 cents of every dollar goes toward paying down debt.

These figures suggest that many Americans are financially overextended and could be just one paycheck away from a financial crisis. Credit debt is the unpaid balance on auto loans, credit cards, student loans and any other non-mortgage debt. Bad credit will negatively affect your credit rating for seven years.

Credit can be a valuable financial tool when used wisely. Many families find it necessary and convenient to use credit, but all families should be aware of the credit danger signals and weigh the cost of credit as it relates to the family’s priorities.

Family Financial Status
The following questions can help to establish your family’s financial status. Take a few minutes to answer yes or no to these 10 questions.
1. Do you fail to save money on a regular basis?
2. Do you frequently run out of money before payday?
3. Are you charged monthly charges that are more than account payments?
4. Are you unable to pay account balances each month?
5. Do you “juggle” payments to creditors?
6. Do you borrow to pay “fixed” expenses?
7. Do you use credit card “cash advances” to pay regular expenses?
8. Do you receive calls and letters from creditors demanding overdue payments?
9. Are you unsure of how much money you owe?
10. Do you frequently pay bills late?

The amount of debt a family can manage depends on the amount and stability of income and total financial obligations. If you have more than 15 percent of your disposable income in debt payments, take steps to limit credit and reduce debt.

An option that can help you regain control of your finances is to set up a debt payment plan and incorporate discipline to follow it.

Six Steps to Develop a Debt Payment Plan
1. Gather information for each debt. Relevant information includes account number, interest rate, due date, amount of last payment, type of loan, balance, whether it is tied to collateral and whether legal action has been taken.
2. Decide how much you can pay each month. Figure out how long it will take to completely pay down each debt. You may have to look for ways to reduce your current living expenses so that money can be redirected to repay debts.
3. Set up a plan for repaying your debts. A goal of repayment within three years is desirable.
If your income increases or some of the debts get paid down, consider increasing your payments on the remaining debts.
4. Discuss your plan with your creditors. Destroy all but one of your credit cards. The remaining card is to be used for emergencies only. Contact each creditor in writing to explain your plan. Keep in mind that most creditors would rather receive even a small payment on a regular basis than nothing at all.
5. Control your spending by sticking with your debt payment plan until all debts are repaid. If your situation changes, contact your creditors immediately. Do not wait for them to contact you.
6. Periodically review your plan to see if you are keeping up with both your debts and daily living expenses. Make necessary adjustments.
Only you and your family can determine if you are willing to make the necessary sacrifices to achieve this worthwhile goal.